Comparative Analysis Of Cryptocurrencies Tail Risk

Cryptocurrency has developed rapidly in the past decade,and its price has also experienced sharp rise and fall.However,when the characteristic of cryptocurrency is not clear,many investors rush in,who ignore the difference and connection between the risk of cryptocurrency and the risk of traditional financial assets,thus making a wrong investment choice for cryptocurrency.The tail risk of assets is the key feature of market participants’ perception of assets.Therefore,this paper comprehensively use extreme value theory,GARCH-EVT,GARCH-QR and Copula methods to study the correlation between the tail risks of cryptocurrency and traditional financial assets,which leads to a further exploration of the differences and connections between cryptocurrency and traditional financial assets.The results show that cryptocurrency is different from traditional financial assets(stock,futures,currency)and shows some immature market asset characteristics,such as high volatility and high tail risk.Using the extreme value theory to fit the tail characteristics of the three cryptocurrencies selected from January 4,2016 to July 21,2020,it is found that all cryptocurrencies have greater tail risk,which is similar to the stock index.Compared with GARCH-EVT and GARCH-QR,quantile regression is more accurate.Through the measurement of correlation,it suggests that the correlation of left tail is stronger than that of right tail,and the correlation is enhanced during the epidemic period,which indicates that the systemic risk of cryptocurrency market is enhanced.There is no significant correlation between the cryptocurrency and the left tail and left-right tail of the selected stock index,which indicates that the selected cryptocurrency is similar to PMGOLD and exchange rate and can be a diversifier,but it can not be tail risk hedging tool similar as both of them.This study makes the participants of cryptocurrency having a better understanding of the cryptocurrency market and doing well in risk response measures,meanwhile provides reference for regulators to carry out risk management and control of cryptocurrency and jointly create a benign cryptocurrency market.