Dynamic Network Perspective of Cryptocurrencies

Date
Thursday 24 Oct 2019, 16:00 - 17:00
Type
Seminar
Spoken Language
English
Room
1-08
Building
Polak Building
Location
Campus Woudestein
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Wolfgang Hãrdle (Humboldt Universitãt zu Berlin)

Cryptocurrencies are becoming an attractive asset class and are the focus of recent quantitative research. The joint dynamics of the cryptocurrency market yields infor-mation on network risk. Utilizing the adaptive LASSO approach, we build a dynamic network of cryptocurrencies and model the latent communities with a dynamic stochas-tic blockmodel. We develop a dynamic covariate-assisted spectral clustering method to uniformly estimate the latent group membership of cryptocurrencies consistently. We show that return inter-predictability and crypto characteristics, including hashing algorithms and proof types, jointly determine the crypto market segmentation. Based on this classification result, it is natural to employ eigenvector centrality to identify a cryptocurrency’s idiosyncratic risk. An asset pricing analysis finds that a cross-sectional portfolio with a higher centrality earns a higher risk premium. Further tests confirm that centrality serves as a risk factor well and delivers valuable information content on cryptocurrency markets.

Co-authors: Li Guo and Yubo Tao

Organisers

More information

Anneke Kop

room: EB-06
phone: +31 (0)10 408 12 59
email: eb-secr@ese.eur.nl

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