An analysis of volatility in the cryptocurrency market in terms of behavioral finance theory

The rapidly developing cryptocurrency market has attracted a great deal of attention in recent years due to its innovative nature and potential to disrupt traditional financial systems. This market is based on blockchain technology, which enables secure and transparent transactions. Cryptocurrencies have attracted the attention of a wide range of investors due to the expectation of high returns. In this study, we first determine an appropriate volatility model for the cryptocurrency market. The appropriate model for daily return data is ARMA(1,0)-EGARCH(1,1) for Bitcoin (BTC), ARMA(1,0)-GARCH(1,1) for Ethereum (ETH), and ARMA(2,1)-EGARCH(1,1) for both BTC and ETH for hourly return data. The results of the analysis suggest a leverage effect in the cryptocurrency market, where negative shocks cause a more significant increase in volatility than positive shocks. Based on the identified volatility structure, we analyze calendar anomalies. The results reveal the existence of calendar anomalies in the cryptocurrency market, suggesting potentially higher returns in certain months of the year, on certain days of the week, and at certain times of the day. BTC traders earn the highest returns in October, on Mondays, and between 07:00-14:00 and 19:00-00:00 UTC. In contrast, ETH traders earn the highest returns in April, on Saturdays, and between 19:00-01:00 UTC. At the same time, weekends, especially Sundays, are associated with lower returns. The study also shows that calendar anomalies are not only in returns but also in volatility. It found significantly higher volatility in January and on Mondays. The trading hours of the Shanghai and Sydney stock exchanges have the most impact on BTC, while the trading hours of the New York stock exchange are significant for ETH. The results obtained from the Cross-Sectional Standard Deviation (CSSD) and Cross-Sectional Absolute Deviation (CSAD) models reveal that no specific herding behavior is observed in the cryptocurrency market.