The IUP Journal of Applied Economics
Explosivity in the Cryptocurrency Market: A Panel GSADF Approach
Article Details
| Pub. Date | : Oct, 2021 |
|---|---|
| Product Name | : The IUP Journal of Applied Economics |
| Product Type | : Article |
| Product Code | : IJAE30721 |
| Author Name | : Anoop S Kumar, Hafsal K and S Anandarao |
| Availability | : YES |
| Subject/Domain | : Economics |
| Download Format | : PDF Format |
| No. of Pages | : 14 |
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Abstract
The paper studies the synchronized explosive behavior in six major cryptocurrency prices by employing a recursive panel Generalized Supremum Augmented Dickey-Fuller (GSADF) unit root test method. Towards this purpose, daily log prices of six cryptocurrencies-Bitcoin, Ethereum, Ripple, Nem, Dash and Litecoin-are employed for the period August 7, 2015 to May 31, 2020. Using the GSADF unit root test, the study finds strong evidence in favor of explosivity in the individual currencies and the panel. Employing the recursive Backwards Supremum ADF (BSADF) date-stamping procedure, significant periods of explosive behavior in the individual cryptocurrencies are identified. In the next stage, the possible exogenous and endogenous reasons behind the explosive price movements are identified. Finally, the panel GSADF analysis is employed and a common turbulent period during 2017-18 is identified, coinciding with the cryptocurrency boom and the subsequent crash of 2018 January. The study presents evidence suggesting synchronization in the cryptocurrency market during the periods of turbulence. Based on the results, the study does not recommend investing in a cryptocurrency portfolio.
Introduction
Cryptocurrencies have been a matter of hot discussion both in academia and the investor community since their inception. Cryptocurrencies are digital financial assets for which records and transfers of ownership are guaranteed by cryptographic technology rather than a bank or other trustworthy third party. However, cryptocurrencies can be described as a set of asset classes as they have fundamental economic connections to other assets but with distinct characteristics (Greer, 1997). Apart from not being considered legal tender money, cryptocurrencies have neither intrinsic value nor promise to pay any sum (Geuder et al., 2019). The lack of an intrinsic value and the substantial changes in their price gave rise to a discussion in the financial literature.
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