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Stochastic Patterns of Bitcoin Volatility: Evidence across Measures

Authors :
Georgia Zournatzidou
Dimitrios Farazakis
Ioannis Mallidis
Christos Floros
Source :
Mathematics, Vol 12, Iss 11, p 1719 (2024)
Publication Year :
2024
Publisher :
MDPI AG, 2024.

Abstract

This research conducted a thorough investigation of Bitcoin volatility patterns using three interrelated methodologies: R/S investigation, simple moving average (SMA), and the relative strength index (RSI). The paper jointly employes the above techniques on volatility range-based estimators to effectively capture the unpredictable volatility patterns of Bitcoin. R/S analysis, SMA, and RSI calculations assess time series data obtained from our volatility estimators. Although Bitcoin is known for its high volatility and price instability, our analysis using R/S analysis and moving averages suggests the existence of underlying patterns. The estimated Hurst exponents for our volatility estimators indicate a level of persistence in these patterns, with some estimators displaying more persistence than others. This persistence underscores the potential of momentum-based trading strategies, reinforcing the expectation of additional price rises after declines and vice versa. However, significant volatility often interrupts this upward movement. The SMA analysis also demonstrates Bitcoin’s susceptibility to external market forces. These observations indicate that traders and investors should modify their risk management approaches in accordance with market circumstances, perhaps integrating a combination of momentum-based and mean-reversion tactics to reduce the risks linked to Bitcoin’s volatility. Furthermore, the existence of robust patterns, as demonstrated by our investigation, presents promising opportunities for investing in Bitcoin.

Details

Language :
English
ISSN :
22277390
Volume :
12
Issue :
11
Database :
Directory of Open Access Journals
Journal :
Mathematics
Publication Type :
Academic Journal
Accession number :
edsdoj.b03a1ce5ee3645f78aace7ef617137be
Document Type :
article
Full Text :
https://doi.org/10.3390/math12111719