A Multi-Layer Machine Learning and Econometric Pipeline for Forecasting Market Risk: Evidence from Cryptoasset Liquidity Spillovers

• URL: http://arxiv.org/abs/2510.20066v1
• Date: Wed, 22 Oct 2025 22:36:34 GMT
• Title: A Multi-Layer Machine Learning and Econometric Pipeline for Forecasting Market Risk: Evidence from Cryptoasset Liquidity Spillovers
• Abstract summary: We study whether liquidity and volatility proxies of a core set of cryptoassets generate spillovers that forecast market-wide risk.<n>Our empirical framework integrates three statistical layers: (A) interactions between core liquidity and returns, (B) principal-component relations linking liquidity and returns, and (C) volatility-factor projections that capture cross-sectional volatility crowding.
• Score: 0.0
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: We study whether liquidity and volatility proxies of a core set of cryptoassets generate spillovers that forecast market-wide risk. Our empirical framework integrates three statistical layers: (A) interactions between core liquidity and returns, (B) principal-component relations linking liquidity and returns, and (C) volatility-factor projections that capture cross-sectional volatility crowding. The analysis is complemented by vector autoregression impulse responses and forecast error variance decompositions (see Granger 1969; Sims 1980), heterogeneous autoregressive models with exogenous regressors (HAR-X, Corsi 2009), and a leakage-safe machine learning protocol using temporal splits, early stopping, validation-only thresholding, and SHAP-based interpretation. Using daily data from 2021 to 2025 (1462 observations across 74 assets), we document statistically significant Granger-causal relationships across layers and moderate out-of-sample predictive accuracy. We report the most informative figures, including the pipeline overview, Layer A heatmap, Layer C robustness analysis, vector autoregression variance decompositions, and the test-set precision-recall curve. Full data and figure outputs are provided in the artifact repository.

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