Exploring asymmetric multifractal cross-correlations of price-volatility and asymmetric volatility dynamics in cryptocurrency markets

TL;DR

This study investigates the asymmetric multifractal cross-correlations between price and volatility in cryptocurrency markets, revealing different behaviors during uptrends and downtrends across various cryptocurrencies using advanced fractal analysis methods.

Contribution

It introduces a fractal analysis approach to examine nonlinear and asymmetric interactions between price and volatility in cryptocurrencies, extending beyond traditional GARCH models.

Findings

Cross-correlations are stronger in downtrend markets for BTC and ETH.

XRP and LTC show stronger cross-correlations during uptrends.

The analysis uncovers asymmetric and multifractal properties in crypto market dynamics.

Abstract

Asymmetric relationship between price and volatility is a prominent feature of the financial market time series. This paper explores the price-volatility nexus in cryptocurrency markets and investigates the presence of asymmetric volatility effect between uptrend (bull) and downtrend (bear) regimes. The conventional GARCH-class models have shown that in cryptocurrency markets, asymmetric reactions of volatility to returns differ from those of other traditional financial assets. We address this issue from a viewpoint of fractal analysis, which can cover the nonlinear interactions and the self-similarity properties widely acknowledged in the field of econophysics. The asymmetric cross-correlations between price and volatility for Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Litecoin (LTC) during the period from June 1, 2016 to December 28, 2020 are investigated using the MF-ADCCA method and quantified via the asymmetric DCCA coefficient. The approaches take into account the nonlinearity and asymmetric multifractal scaling properties, providing new insights in investigating the relationships in a dynamical way. We find that cross-correlations are stronger in downtrend markets than in uptrend markets for maturing BTC and ETH. In contrast, for XRP and LTC, inverted reactions are present where cross-correlations are stronger in uptrend markets.