Asymmetric effects on risks of Virtual Financial Assets (VFAs) in different regimes: a case of bitcoin

Zhenghui Li, Hao Dong, Zhehao Huang, Pierre Failler

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    The rapid development of VFAs allows investors to diversify their choices of investment products. In this paper, we measure the return risk of VFAs based on GARCH-type model. By establishing a Markov regime-switching Regression (MSR) Model, we explore the asymmetric effects of speculation, investor attention, and market interoperability on return risks in different risk regimes of VFAs. The results show that the influences of speculation and investor attention on the risks of VFAs are significantly positive at all regimes, while market interoperability only admits a positive impact on risk under high risk regime. All of the three factors exert asymmetric effects on risks in different regimes. Further study presents that the risk regime-switching also shows asymmetric characteristic but the medium risk regime is more stable than any others. Therefore, transactions of investors and arbitrageurs are monitored by certain policies, such as limiting the number of transactions or restricting the trading amount at high risk regime. However, when return risk is low, it will return to a medium level if we encourage investors to access.
    Original languageEnglish
    Pages (from-to)860-883
    JournalQuantitative Finance and Economics
    Issue number4
    Publication statusPublished - 22 Nov 2018


    • asymmetric effect
    • market risk
    • Virtual Financial Assets
    • Bitcoin
    • Markov regime switching model


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