A DANCE OF CRYPTOCURRENCIES: CAUSALITY, VOLATILITY SPILLOVER, AND CO-INTEGRATION OF BITCOIN AND ETHEREUM
This study examines Bitcoin and Ethereum's dynamic interactions and causal relationships. Our research uses many advanced statistical and econometric methods. These include Augmented Dickey-Fuller (ADF) tests for stationarity, GARCH models for volatility, VAR models for multivariate analysis, Granger causality tests for predictive relationships, and co-integration analysis for long-term associations. Our study found significant skewness and kurtosis in both cryptocurrencies' return distributions, highlighting the need for specialized statistical methods. Bitcoin and Ethereum returns have a strong positive correlation, indicating their interdependence. The analysis of volatility spillover underscores their interdependence. Bitcoin exhibits volatility clustering and Ethereum's volatility is influenced by past shocks. Granger causality tests show a one-way relationship between Bitcoin and Ethereum. Co-integration analysis shows that the two entities have lasting relationships despite their instability. The above findings find use in risk management, portfolio diversification, trading strategies, and policy decisions in the ever-changing cryptocurrency market. Despite limitations, this study lays the groundwork for future cryptocurrency research. Risk managers, investors, academics, and policymakers can use these insights to improve their cryptocurrency strategies and decisions.
Bitcoin, Ethereum, Volatility Spillover, Co-integration, Correlation Coefficient, GARCH.