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