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Title: Using transfer entropy to measure information flows between cryptocurrencies
Authors: Assaf, Ata 
Bilgin, Mehmet Huseyin
Demir, Ender
Affiliations: Faculty of Business and Management 
Keywords: Cryptocurrencies
Information flows
Rényi transfer entropy
Shannon Entropy
Issue Date: 2022-01-15
Publisher: Elsevier
Part of: Physica A: Statistical Mechanics and its Applications
Volume: 586
In this paper, we use the transfer entropy to quantify information flows between three cryptocurrencies, namely Bitcoin, Ethereum and Ripple. We also employ the concept of Rényi transfer entropy that allows for capturing rare and frequent events separately as well as non-linear market dependencies, focusing on extreme (tail) observations of the return distributions. We find that Bitcoin and Ripple share a bidirectional information transmission, while there is only one directional information transmission from Ripple to Ethereum. There is no nonlinear information transmission according to the Rényi's measure, which implies the linear dependency among the three cryptocurrencies. This information transmission between cryptocurrencies occurs mostly in the pre-crash period while they become independent after the 2017 cryptocurrency crash. We finally use the concept of volatility surprise to examine linkages among the volatility of our series, and find a highly significant information transmission flow in one direction from Bitcoin to Ripple. Our results should be useful to investors in helping them in developing investment strategies by considering these three cryptocurrencies.
ISSN: 03784371
DOI: 10.1016/j.physa.2021.126484
Ezproxy URL: Link to full text
Type: Journal Article
Appears in Collections:Department of Business Administration

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