Demystifying the Effect of the News (Shocks) on Crypto Market Volatility

Abstract

The cryptocurrency market has enormous growth potential. In this study, the aim is to investigate how the news (shocks) affects cryptocurrency market volatility. This is significant because, while cryptocurrencies are gaining popularity among investors, the market’s extreme volatility discourages some prospective buyers, while also causing large losses for inexperienced investors. From 8 March 2019 to 30 November 2022, data from Bitcoin, Binance Coin, Ethereum, Dogecoin, and XRP were collected for the current study. The E-GARCH model was applied to the framed dataset to achieve the research aim. We discovered that the value of the size factor for all currencies was statistically significant, indicating that the news (shocks) significantly impacts volatility. Furthermore, volatility persistence in all cryptocurrencies is found to be very high and statistically significant. These study findings can help investors understand the impact of the news (shocks) on volatility in cryptocurrency returns.