Good and bad volatility spillovers in the cryptocurrency market : New Evidence from a TVP-VAR asymmetric connectedness approach

This paper uncovers the dynamics of the asymmetric volatility spillovers across three majorcryptocurrencies (Bitcoin, Ethereum, and Stellar) comprising nearly 75% of the cryptocurrencymarket capitalization. Using a novel Time-Varying Parameter Vector Autoregression(TVP-VAR) asymmetric connectedness approach and a high frequency (hourly) datasetranging from 31st May 2018 to 5th June 2021, the main findings are summarized as follows:Firstly, negative (bad) volatility spillovers are more pronounced than positive (good)spillovers, revealing the presence of asymmetric volatility effects in the cryptocurrency market.Secondly, Ethereum is the major net transmitter of both, negative and positive, volatilityshocks, illustrating its importance to the network of spillovers. Thirdly, the position ofBitcoin has changed from its net transmitting role to being a net receiver of shocks, withEthereum emerging as the market leader. Finally, the importance of Stellar to the systemof volatility spillovers has grown towards the end of the sample period, becoming a nettransmitter of shocks. We argue that these findings can be explained in light of China’sstrict regulations and significant role in the cryptocurrency market