Regime Heteroskedasticity in Bitcoin: A Comparison of Markov Switching Models
51 Pages Posted: 3 Dec 2018
Date Written: September 28, 2018
Abstract
In response to Molnár and Thies (2018) demonstrating that the price data of Bitcoin contained structural breaks, we identify the optimal number of states for a Markov regime-switching (MRS) model to capture the regime heteroskedasticity of Bitcoin. We determined that the restricted 5-state MRS model provided the best goodness-of-fit scores (-AIC, -BIC, -HQIC) for the fitted sample. In addition, we found evidence of stylised characteristics in the price data of Bitcoin, namely: volatility clustering; volatility jumps; asymmetric volatility transitions; and the persistence of shocks.
Keywords: Bitcoin; Markov regime-switching; regime heteroskedasticity; volatility transitions
JEL Classification: C01; C22; C50; C58
Suggested Citation: Suggested Citation