The relationship between bitcoin trading volume, volatility, and returns: A study of four seasons

    Research output: Chapter in Book/Report/Conference proceedingConference contribution

    Abstract

    We study the relationship between Bitcoin trading volume, volatility, and returns using financial data for the period July 2010–November 2017. When we compare the raw annualized volatility of the Bitcoin exchange rate against common currencies, we observe that Bitcoin’s is higher. However, when the volume of Bitcoin transactions is considered, the volatility of the Bitcoin stabilizes significantly. Then we divide our sample into four distinct time periods, defined by three important events, namely, the loss of public confidence in the banking system in 2013, the MtGox Bitcoin Exchange hack in early 2014, and the introduction of the Bitcoin legislation in Japan in April 2017. Using asymmetric EGARCH models with the lag of the natural logarithm of the volume of the Bitcoin both as a regressor in the mean equation as well as in the specification of the conditional variance as multiplicative heteroskedasticity we show that volume and volatility are related after 2013, and volume and returns are related before the MtGox hack, positively and significantly. Further, during the euphoric period between the beginning of 2013 and up to the MtGox hack an unexpected rise in Bitcoin returns increases Bitcoin volatility more than an unexpected, equally sized decrease (asymmetry).

    Original languageEnglish
    Title of host publicationInformation Systems - 15th European, Mediterranean, and Middle Eastern Conference, EMCIS 2018, Proceedings
    EditorsMarinos Themistocleous, Marinos Themistocleous, Paulo Rupino da Cunha
    PublisherSpringer Verlag
    Pages3-15
    Number of pages13
    ISBN (Print)9783030113940
    DOIs
    Publication statusPublished - 1 Jan 2019
    Event15th European, Mediterranean, and Middle Eastern Conference on Information Systems, EMCIS 2018 - Limassol, Cyprus
    Duration: 4 Oct 20185 Oct 2018

    Publication series

    NameLecture Notes in Business Information Processing
    Volume341
    ISSN (Print)1865-1348

    Conference

    Conference15th European, Mediterranean, and Middle Eastern Conference on Information Systems, EMCIS 2018
    CountryCyprus
    CityLimassol
    Period4/10/185/10/18

    Keywords

    • Asymmetric GARCH
    • Bitcoin
    • Volatility
    • Volume

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  • Cite this

    Kokkinaki, A., Sapuric, S., & Georgiou, I. (2019). The relationship between bitcoin trading volume, volatility, and returns: A study of four seasons. In M. Themistocleous, M. Themistocleous, & P. R. da Cunha (Eds.), Information Systems - 15th European, Mediterranean, and Middle Eastern Conference, EMCIS 2018, Proceedings (pp. 3-15). (Lecture Notes in Business Information Processing; Vol. 341). Springer Verlag. https://doi.org/10.1007/978-3-030-11395-7_1