VAR of VaR : the case of cryptocurrencies and financial markets

Abstract

Due to the fact that digital currencies nowadays have become an essential technological advancement in our society, investors are now adapting to new techniques in order to gain advantage in predicting their prices and returns. Cryptocurrencies by nature are highly volatile therefore, scaring investors away rather than attracting them. By obtaining daily historical prices we examined the relationship between cryptocurrencies on different financial markets. How they are linked highly depended on which cryptocurrency is supported more in a certain market index. This paper should be helpful for investors who focus on diversification to reduce risk. My results from using the Vector Autoregressive model to interpret how Bitcoin and Ripple transgress throughout different market segments are highly beneficial. Overall, Bitcoin does not have the same results as Ripple on certain market indexes, and Ripple also does not react in the same way as Bitcoin on stock market indices.