Investigating tail-risk dependence in the cryptocurrency markets: A LASSO quantile regression approach

Date

2020-07-03

Advisors

Journal Title

Journal ISSN

ISSN

0927-5398

Volume Title

Publisher

Elsevier

Type

Article

Peer reviewed

Yes

Abstract

We construct the complete network of tail risk spillovers among major cryptocurrencies using the Least Absolute Shrinkage and Selection Operator (LASSO) quantile regression. We capture important features of the network, including major risk-driving and major risk-receiving currencies, and the evolution of the tail dependence among the currencies over time. Importantly, we reveal a striking finding that the right tail dependence among the cryptocurrencies is significantly stronger than the left tail counterpart. This unique characteristic may have contributed to the rise in popularity of cryptocurrencies over the last few years. Our portfolio analysis reveals that diversification in cryptocurrency investment can be accomplished simply by employing the naïve equal-weighted scheme even when transaction costs are taken into account.

Description

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.

Keywords

Tail risk, Spillover, Cryptocurrency, Network

Citation

Nguyen, L.H., Chevapatrakul, T., Yao, K. (2020) Investigating tail-risk dependence in the cryptocurrency markets: A LASSO quantile regression approach. Journal of Empirical Finance, 58, pp.333-355.

Rights

Research Institute

Finance and Banking Research Group (FiBRe)