Research on Contagion Effects between Jumps of VIX Index and Bitcoin Using Multi-Dimensional Hawkes Process

Author: Quan Li
Degree: M.S. in Financial Engineering
Year: 2022
Advisory Committee: Dr. Steve Yang, Dr. Dan Pirjol

Abstract: Recent studies have provided some evidence showing the existence of effects between the VIX index and the cryptocurrency market. Inspired by these earlier findings, we implement bipower variation to detect jumps in the VIX index and Bitcoin. We then distribute the data from these jumps as four kinds of events to form a four-dimensional Hawkes process to analyze both positive and negative jumps. Our results show several noteworthy contagion effects for all four types of jumps. For cross-contagion effects, positive jumps in the VIX index can trigger high level cross-exciting effects for both positive and negative jumps in Bitcoin. Meanwhile, only positive Bitcoin jumps have comparatively smaller contagion effects to positive jumps in the VIX index. There also exists both self-exciting and cross-exciting jump effects between VIX index jumps and Bitcoin jumps. Moreover, the decaying effects from positive jumps in the VIX index exert more influence on decaying effects of Bitcoin than its counterpart, while the decaying effect from jumps in Bitcoin only stand for positive jumps in the VIX index. These findings provide further evidence of the relationship and influences between classic markets and the relatively new cryptocurrency market.