AN EMPIRICAL ANALYSIS OF SPECULATIVE BEHAVIOR AND THE SPILLOVER EFFECT IN CRYPTOCURRENCY MARKETS

Year 2023, Volume: 7 Issue: 1, 1 - 21, 30.03.2023

Emrah Doğan Selin Yalçıntaş

Abstract

For risk management and stable pricing in the cryptocurrency market, it is necessary to determine the interdependence of speculative behaviour and crypto assets. The correlation and high volatility
caused by the interdependence of financial assets in the cryptocurrency market can lead to spreading risks. The study aims to measure the speculative behaviour and spillover effect in the prices of financial assets in the cryptocurrency market. The study used the SADF test, the generalized Dickey-Fuller test (GSADF), and the frequency domain causality test of Breitung and Candelon (2006) to determine the speculative behaviour and spillover effect in the prices of financial assets in the cryptocurrency market. Empirical evidence of speculative bubble formation between January 1, 2018, and December 2021 for the cryptocurrency assets covered in the study (ADA, BNB, BTC, DOGE, ETH, XLM, and XRP) is presented. Moreover, the frequency domain causality results obtained in the study show a contagion and spillover effect between crypto assets. The results provide essential information on the development of speculative behaviour and spread risk in the formation of financial asset prices in the cryptocurrency market.

Keywords

Cryptocurrency Markets, Bubbles, Spread Risks, Right-tailed Unit Root Tests, Frequency Domain Causality

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