Price and Prejudice: An Empirical Look at the Value Formation of Bitcoin
1 online resource (53 pages) : PDF
University of North Carolina at Charlotte
Bitcoin price formation has been the topic of many studies due to the recent rise in popularity of cryptocurrencies around the globe. The problem not only lies with attempting to find how the value of this currency is established, but finding a framework that best describes how Bitcoin is created. In this paper, a modified version of Barro's framework is used, along with other prior frameworks, in an attempt to model pricing variation and formation for Bitcoin. To find causality, a simple VAR(p) model is used as a starting point, where the lag-order is selected based on BIC. This model includes various network statistics, Bitcoin popularity measures, commodity prices, and financial markets to identify potential pricing factors which could be argued to cause changes in Bitcoin price. A multivariate GARCH approach (MGARCH) is then used to fortify this model by not only modeling these causal relationships but modeling changes in volatility, eventually using Google trends to explain volatility changes in Bitcoin prices. According to these models, Bitcoin price formation follows an AR(1) process with ARCH/GARCH effects where these ARCH/GARCH effects can be explained by Bitcoin popularity. Due to the returns of Bitcoin relying on past information, a violation of the efficient market hypothesis may be present, meaning that arbitrage may exist in the Bitcoin market.
BITCOIN MODELBITCOIN PRICECRYPTOCURRENCYECONOMETRICSMGARCHSPECULATION
Clark, StevenGaggl, Paul
Thesis (M.S.)--University of North Carolina at Charlotte, 2018.
This Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s). For additional information, see http://rightsstatements.org/page/InC/1.0/.
Copyright is held by the author unless otherwise indicated.