Tail Risk Connectedness and Systemic Volatility in the Cryptocurrency Market: Evidence from a Value-at-Risk Framework
Description
This study hypothesizes that downside risk is highly interconnected across cryptocurrency markets, but the magnitude and direction of spillovers vary across VaR levels, market conditions, and individual assets. It also examines whether COVID-19 caused a persistent increase in systemic connectedness and whether connectedness-based portfolio construction improves risk management. The dataset contains 2,172 daily closing-price observations for 12 major cryptocurrencies from 26 February 2018 to 6 February 2024, obtained from DataStream. Daily log returns were calculated, and downside risk was estimated at the 1%, 5%, and 10% VaR levels using an asymmetric CAViaR model. The resulting VaR series were analyzed using a TVP-VAR connectedness framework.
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Institutions
- Pusan National UniversityBusan, Busan