20 Aug 2021
The paper examines the jumps and cojumps of major and minor cryptocurrencies to deepen the understanding behind the fluctuations. Having a more in-depth knowledge of the nature of these jumps and cojumps plays an important role in risk management, asset allocation and derivative prices. There is plentiful evidence of jumps and cojumps in multiple areas. Studies have found jumps in stock prices, currencies, bond prices, interest rates, and even electricity prices. Cojumps are also found in stock prices and exchange rates. Researchers have found that jumps and cojumps are likely to be driven by company-specific and overall market-level news. However, studies examining the presence of jumps and cojumps in cryptocurrencies have been limited. The market is vast – as of May 2020, the total market capitalization of all cryptocurrencies was US$250 billion, and that number is rising rapidly. Studies have typically focused on popular cryptocurrencies such as Bitcoin, Ethereum and Litecoin. However, the total market capitalization of the 11th to the 500th cryptocurrencies ranked by the market capitalization is $41 billion. If you exclude Bitcoin, this is about 70% of the top 10 cryptocurrencies by market capitalization. Therefore, the limited examination of jumps and cojumps in minor cryptocurrencies is a significant gap in the literature. The paper looks at some of the prior research and studies conducted. As cryptocurrencies are increasingly used as an investment and for hedging against other assets, a deeper understanding is crucial. Some research has already investigated the correlation properties of assets and found Bitcoin is useful for risk management and benefits portfolio diversification. The few studies that have examined jumps and cojumps in larger numbers of cryptocurrencies are looked at and discussed. Several found interdependencies between the currencies and some evidence indicating that major news influences the correlation and volatility of these assets. This research examines the jumps and cojumps of 54 major and minor cryptocurrencies. It also empirically examines the cojumps of these cryptocurrencies within the Thai stock market. To the best of the authors’ knowledge, this is the most extensive study into the topic. The methodology used for looking at jumps and cojumps is explained in depth before moving on to the data. This is followed by clarifying how the data was collected, including times, dates, what was analyzed, where the information came from, and what programs and platforms were used. The data is then presented in a series of tables. The study found evidence that all cryptocurrencies display significant jumps. The results show that minor cryptocurrencies appear to have higher jump intensity (two times bigger), higher jump size (three times bigger) and higher cojump intensity (two times bigger) with the SET100 index compared to major cryptocurrencies. These findings are new and have not previously been documented in the literature. Given the substantial total market capitalization of minor cryptocurrencies as a group, these findings imply they could be incredibly important in financial markets. It is clear that minor cryptocurrencies will play a significant role in risk management, asset allocation, and derivatives pricing. The paper concludes that when regulators formulate policies to govern volatility, they should not disregard minor cryptocurrencies. Similarly, investors should not overlook them when assessing their risk management and asset allocation. As a group, minor cryptocurrencies have a significant presence in terms of market capitalization and are more volatile than more prominent cryptocurrencies. Consequently, researchers should pay them considerably more attention than they have received so far. The paper is published on PLOS ONE, click here to read the full article.  
Authors:
Assistant Professor Piyachart Phiromswad, Ph.D. Associate Professor Pattanaporn Chatjuthamard, Ph.D. Professor Sirimon Treepongkaruna, Ph.D. Assistant Professor Sabin Srivannaboon, Ph.D.
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