Study of Bitcoin volatility dynamics: MSGARCH model approach

Abstract

This paper investigated the existence of structural break and impact of Gold and Platinum value on Bitcoin value. We also examined changes in the regime using three MSGARCH models, namely single-regime, two-regime, and three-regime, and compared their performances. We found the presence of break and significant impact of the Platinum value. Previous studies found that Gold has an impact on Bitcoin value, but empirically we could not find any. The two-regime MSGARCH model performs well among three models, and there is evidence of low volatility and high volatility regime. The out-of-sample forecast performance is almost same in the three models. In the long run, the presence of low volatility regime is more prominent than the high volatility regime.