Fractional and fractal processes applied to cryptocurrencies price series,Journal of Advanced Research

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Fractional and fractal processes applied to cryptocurrencies price series
Journal of Advanced Research ( IF 11.4 ) Pub Date : 2021-01-07 , DOI: 10.1016/j.jare.2020.12.012
S A David ₁ , C M C Inacio ₁ , R Nunes ₁ , J A T Machado ₂

Affiliation

Introduction

Cryptocurrencies have been attracting the attention from media, investors, regulators and academia during the last years. In spite of some scepticism in the financial area, cryptocurrencies are a relevant subject of academic research.

Objectives

In this paper, several tools are adopted as an instrument that can help market agents and investors to more clearly assess the cryptocurrencies price dynamics and, thus, guide investment decisions more assertively while mitigating risks.

Methods

We consider three methods, namely the Auto-Regressive Integrated Moving Average (ARIMA), Auto-Regressive Fractionally Integrated Moving Average (ARFIMA) and Detrended Fluctuation Analysis, and three indices given by the Hurst and Lyapunov exponents or the Fractal Dimension. This information allows assessing the behaviour of the time series, such as their persistence, randomness, predictability and chaoticity.

Results

The results suggest that, except for the Bitcoin, the other cryptocurrencies exhibit the characteristic of mean reverting, showing a lower predictability when compared to the Bitcoin. The results for the Bitcoin also indicate a persistent behavior that is related to the long memory effect.

Conclusions

The ARFIMA reveals better predictive performance than the ARIMA for all cryptocurrencies. Indeed, the obtained residual values for the ARFIMA are smaller for the auto and partial auto correlations functions, as well as for confidence intervals.

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