Compare the fluctuations between equity markets and cryptocurrency markets: Empirical Research Project

Abstract

This research examines the volatility dynamics between traditional equity markets, represented by indices such as the S&P 500 and FTSE 100, and cryptocurrency markets, particularly Bitcoin and Ethereum. The study employs advanced statistical models like ARMA, ARMA-GARCH, and Value at Risk (VaR) techniques, to conduct risk analysis compared to volatility of these asset classes. The primary finding was that the traditional equity indices exhibit relative stability with moderate volatility, which remains consistent over time. In contrast, cryptocurrencies experience high volatility due to speculative trading, regulatory uncertainties, and market sentiment, leading to increased risks. Consequently, more robust risk management strategies in cryptocurrency markets because of their heightened susceptibility. Additionally, geopolitical and regulatory factors are critical considerations for future researchers exploring market volatility while employing new predictive models such as EGARCH or Long Short-Term Memory (LSTM), an example of machine learning methods in the prediction of both classical as well as digital currencies’ volatilities.