Asymmetric volatility in cryptocurrencies

This article analyzes asymmetric volatility effects for the 20 largest cryptocurrencies and reports a very different asymmetry compared to equity markets: positive shocks increase the volatility by more than negative shocks. We explain this atypical effect for financial assets with trading activity...

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Bibliographic Details
Published in:Economics letters 2018-12, Vol.173, p.148-151
Main Authors: Baur, Dirk G., Dimpfl, Thomas
Format: Article
Language:English
Subjects:
Asymmetric volatility
Asymmetry
Bitcoin
Cryptocurrencies
Digital currencies
Effects
FOMO
Markets
Noise
Securities markets
Trading
Volatility
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Summary:This article analyzes asymmetric volatility effects for the 20 largest cryptocurrencies and reports a very different asymmetry compared to equity markets: positive shocks increase the volatility by more than negative shocks. We explain this atypical effect for financial assets with trading activity of uninformed noise traders for positive shocks and trading activity of informed traders for negative shocks. The findings are consistent with “fear of missing out” (FOMO) of uninformed investors and the existence of pump and dump schemes. •Cryptocurrency volatility generally increases after positive shocks.•Behavior of informed and noise traders explains the reaction.•Fear of missing out is particularly prominent for cryptocurrencies.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2018.10.008