Return equicorrelation in the cryptocurrency market: analysis and determinants

Abstract

We examine market integration among 12 leading cryptocurrencies from August 8, 2015 to February 28, 2019. Using the dynamic equicorrelation (DECO) model, we report evidence that the average return equicorrelation is very time-varying. After experiencing large instability in 2016-2017, it increased from late 2017 till early 2019 and remained at relatively high levels. This finding points to a heightened integration in the cryptocurrency market, despite the sharp price correction in the cryptocurrency market during 2018, suggesting that market integration is a continuing and persistent phenomenon. Further examination shows that trading volume and measures of uncertainties are main determinants of integration.