Bitcoin and stock market indices: analysis of volatility’s clusters during the bitcoin bubble based on the dynamic conditional correlation model

Abstract

The market of virtual currencies, called cryptocurrency, has grown immensely since 2008 in terms of market
\ncapitalisation and the numbers of new currencies. Bitcoin is one of the most famous cryptocurrency with an estimated
\nmarket capitalisation of nearly $ 69 billion. The fact that Bitcoin prices have fallen about 70% from their peak value and
\nmost indices were down double-digit year to date (2018) with a high daily volatility create the appearance that there has
\nto be a correlation.
\nThe purpose of this paper is to investigate the contagion effect between Bitcoin prices and the leading American,
\nEuropean and Asian equity markets using the dynamic conditional correlation (DCC) model proposed by Engle and
\nSheppard (2001).
\nContagion is defined in this context as the statistical break in the computed DCCs as measured by the shifts in their
\nmeans and medians. Even it is astonishing that the contagion is lower during price bubbles, the main finding indicates the
\npresence of contagion in the different indices among the three continents and proves the presence of structural changes
\nduring the Bitcoin bubble. Moreover, the analysis shows that specific market indices are more correlated with the Bitcoin
\nprice than others.