Nonlinear autoregressive distributed lag approach: an application on the connectedness between Bitcoin returns and the other ten most relevant cryptocurrencies returns

Abstract

This article examines the connectedness between Bitcoin returns and returns of ten additional cryptocurrencies for several frequencies: daily, weekly and monthly, over the period January 2015 – March 2020 using a NARDL (nonlinear autoregressive distributed lag) approach. We find important and positive interdependencies among cryptocurrencies and significant long-run relations among most of them. In addition, non-bitcoin cryptocurrency returns seem to react in the same way to positive and negative changes in Bitcoin returns, obtaining strong evidence of asymmetry in the short-run. Finally, our results show high persistence in the impact of both positive and negative changes in Bitcoin returns on most of the other cryptocurrencies returns. Thus, our model explains about 50% of the other cryptocurrencies returns with changes in Bitcoin returns.