FEDERAL FUNDS RATE ON BITCOIN VOLATILITY : Using the symmetric GARCH and asymmetric EGARCH models

University essay from Umeå universitet/Nationalekonomi

Author: Elias Atmander; [2021]

Keywords: ;

Abstract: This thesis examines the volatility of Bitcoin during four years from 2014-04-01 until 2020-04-01. The main objective of the thesis was to answer the research question: “Is the return volatility of Bitcoin affected by interest rate change announcements by the FOMC?” and given Bitcoin’s decentralized characteristics, the hypothesis to this was that Bitcoin should not be affected by such changes. The GARCH (1,1) and EGARCH (1,1) models were used to analyze the transformed logarithmic returns of Bitcoin. The number of observations sum to 1462 observations (days). Additionally, 13 observations of change announcements in the federal funds rate were used with a dummy variable approach to analyze for effects on Bitcoin volatility. The main findings of this thesis indicate that Bitcoin is not affected by announcements of a change in the federal funds rate, and thus, the hypothesis that Bitcoin is immune to changes in the federal funds rate is supported.

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