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Comparing Bitcoin and Ethereum Tail Risk with Q-Q Plots

Article arXiv papers · Author: A. H. Nzokem
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Summary

This study compares the tails of daily Bitcoin and Ethereum returns. It uses seven-parameter estimates from earlier research based on the Generalized Tempered Stable distribution, then examines quantile-quantile plots against a Normal distribution to assess how observed returns differ from a normal benchmark.

The plots indicate heavy tails for both cryptocurrencies, meaning extreme returns occur more often than a normal model would imply. Ethereum shows more extreme observations than would be expected under the Bitcoin-modeled comparison, pointing to greater tail risk in this analysis. These findings can inform risk assessment, but the document provides no sample dates, numerical tail estimates, or evidence about whether the comparison holds across other periods or modeling choices.

Key ideas

  • Q-Q plots compare cryptocurrency return quantiles with those of a Normal distribution.
  • Daily returns for both Bitcoin and Ethereum show heavy-tailed behavior in the reported analysis.
  • Ethereum exhibits more extreme values than the Bitcoin-modeled counterpart.
  • Tail-risk conclusions depend on the prior distribution estimates and the data period, which the summary does not specify.

Tags

CryptoStatisticsVolatilityRisk management
Full text
# Comparing Bitcoin and Ethereum tail behavior via Q-Q analysis of cryptocurrency returns


# Comparing Bitcoin and Ethereum tail behavior via Q-Q analysis of cryptocurrency returns









The cryptocurrency market presents both significant investment opportunities and higher risks relative to traditional financial assets. This study examines the tail behavior of daily returns for two leading cryptocurrencies, Bitcoin and Ethereum, using seven-parameter estimates from prior research, which applied the Generalized Tempered Stable (GTS) distribution. Quantile-quantile (Q-Q) plots against the Normal distribution reveal that both assets exhibit heavy-tailed return distributions. However, Ethereum consistently shows a greater frequency of extreme values than would be expected under its Bitcoin-modeled counterpart, indicating more pronounced tail risk.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.