Cryptocurrency Market Volatility: Dynamics and Spillover Effects

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Introduction

Cryptocurrency markets are known for their extreme volatility, presenting both opportunities and risks for investors. This article examines the evolution of cryptocurrency prices, interdependencies among returns and volatility, and spillover effects between crypto and traditional financial markets.

Key Findings


Analyzing Cryptocurrency Volatility

Methodology

Using mean-GARCH models, researchers Jinan Liu and Apostolos Serletis (2019) investigated:

  1. Volatility-Return Relationships: How price fluctuations influence crypto returns.
  2. Cross-Market Spillovers: Whether crypto volatility affects stocks, forex, or commodities.

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Core Insights


FAQs

1. What drives cryptocurrency volatility?

Cryptocurrencies are influenced by regulatory news, technological developments, and market sentiment, unlike traditional assets tied to macroeconomic indicators.

2. How do GARCH models help analyze crypto markets?

GARCH (Generalized Autoregressive Conditional Heteroskedasticity) quantifies volatility clustering—a hallmark of crypto price movements.

3. Can crypto volatility predict traditional market trends?

While not deterministic, crypto volatility often precedes instability in equities and forex, especially in tech-heavy indices.

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Conclusion

Cryptocurrency markets remain a dynamic frontier with measurable impacts on global finance. Investors should monitor volatility patterns and cross-market correlations to navigate risks effectively.

Keywords: cryptocurrency volatility, GARCH models, market spillovers, Bitcoin, Ethereum, financial markets, risk management


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