A1 Journal article (refereed)
On the stability of stablecoins (2021)

Grobys, K., Junttila, J., Kolari, J. W., & Sapkota, N. (2021). On the stability of stablecoins. Journal of Empirical Finance, 64, 207-223. https://doi.org/10.1016/j.jempfin.2021.09.002

JYU authors or editors

Publication details

All authors or editors: Grobys, Klaus; Junttila, Juha; Kolari, James W.; Sapkota, Niranjan

Journal or series: Journal of Empirical Finance

ISSN: 0927-5398

eISSN: 1879-1727

Publication year: 2021

Volume: 64

Pages range: 207-223

Publisher: Elsevier

Publication country: Netherlands

Publication language: English

DOI: https://doi.org/10.1016/j.jempfin.2021.09.002

Publication open access: Openly available

Publication channel open access: Partially open access channel

Publication is parallel published (JYX): https://jyx.jyu.fi/handle/123456789/77954

Additional information: Available at SSRN: https://ssrn.com/abstract=3764457 or http://dx.doi.org/10.2139/ssrn.3764457

Abstract

This paper investigates the volatility processes of stablecoins and their potential stochastic interdependencies with Bitcoin volatility. We employ a novel approach to choose the optimal combination for the power law exponent and the minimum value for the volatilities bending the power law. Our results indicate that Bitcoin volatility is well-behaved in a statistical sense with a finite theoretical variance. Surprisingly, the volatilities of stablecoins are statistically unstable and contemporaneously respond to Bitcoin volatility. Also, whereas the volatilities of stablecoins are not Granger-causal for Bitcoin volatility, lagged Bitcoin volatility exhibits Granger-causal effects on the volatilities of stablecoins. We conclude that Bitcoin volatility is a fundamental factor that drives the volatilities of stablecoins.

Keywords: virtual currency; markets (systems); market value; volatility (societal properties)

Free keywords: Bitcoin; financial technology; power laws; spillovers; stablecoins

Contributing organizations

Ministry reporting: Yes

Reporting Year: 2021

JUFO rating: 2