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Giver and the receiver: Understanding spillover effects and predictive power in cross-market Bitcoin prices

Giver and the receiver: Understanding spillover effects and predictive power in cross-market Bitcoin prices
Giver and the receiver: Understanding spillover effects and predictive power in cross-market Bitcoin prices
We identify and characterise the ‘givers and the receivers’ of volatility in cross-market Bitcoin prices and discuss international diversification strategies in this context. Using both time and frequency domain mechanisms, we provide estimates of outward and inward spillover effects. These have implications for (weak-form) cross-market inefficiency. In our setting, we treat high-degree of spillover as an indicator of weak-form inefficiency because investors can utilise information on the dynamic spillover effects to produce a best long-run prediction of the market. Our results show that Bitcoin prices depict strong (dynamic) spillover in volatility, especially during episodes of high uncertainty. The Bitcoin-USD exchange rate possesses net predictive power, mirrored by the tendency of the Bitcoin-EURO market as a net receiver relative to other markets. Robustness exercise generally supports our claim. The overall implication is that during episodes of high uncertainty, Bitcoin markets depict greater dynamic inefficiency, instrumenting the role of asymmetric information in the path-dependence and predictive power of Bitcoin prices in an interdependent market.
Cross-market Bitcoin prices, Inefficiency, Prediction, Return and volatility spillovers, Uncertainty
1057-5219
86-104
Gillaizeau, Marc
2bc2dc4c-d96c-4c9e-889e-ee9cbd5e4d09
Jayasekera, Ranadeva
341476a7-e831-4acb-97bc-df681bd4fe73
Maaitah, Ahmad
7057414d-762b-49d8-9724-f6d9e1fffd09
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Parhi, Mamata
5e489f1d-9fe0-44b3-8027-bfa3ec6bfbd4
Volokitina, Evgeniia
06c9f867-68f7-46f0-9409-62b3bbe9f740
Gillaizeau, Marc
2bc2dc4c-d96c-4c9e-889e-ee9cbd5e4d09
Jayasekera, Ranadeva
341476a7-e831-4acb-97bc-df681bd4fe73
Maaitah, Ahmad
7057414d-762b-49d8-9724-f6d9e1fffd09
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Parhi, Mamata
5e489f1d-9fe0-44b3-8027-bfa3ec6bfbd4
Volokitina, Evgeniia
06c9f867-68f7-46f0-9409-62b3bbe9f740

Gillaizeau, Marc, Jayasekera, Ranadeva, Maaitah, Ahmad, Mishra, Tapas, Parhi, Mamata and Volokitina, Evgeniia (2019) Giver and the receiver: Understanding spillover effects and predictive power in cross-market Bitcoin prices. International Review of Financial Analysis, 63, 86-104. (doi:10.1016/j.irfa.2019.03.005).

Record type: Article

Abstract

We identify and characterise the ‘givers and the receivers’ of volatility in cross-market Bitcoin prices and discuss international diversification strategies in this context. Using both time and frequency domain mechanisms, we provide estimates of outward and inward spillover effects. These have implications for (weak-form) cross-market inefficiency. In our setting, we treat high-degree of spillover as an indicator of weak-form inefficiency because investors can utilise information on the dynamic spillover effects to produce a best long-run prediction of the market. Our results show that Bitcoin prices depict strong (dynamic) spillover in volatility, especially during episodes of high uncertainty. The Bitcoin-USD exchange rate possesses net predictive power, mirrored by the tendency of the Bitcoin-EURO market as a net receiver relative to other markets. Robustness exercise generally supports our claim. The overall implication is that during episodes of high uncertainty, Bitcoin markets depict greater dynamic inefficiency, instrumenting the role of asymmetric information in the path-dependence and predictive power of Bitcoin prices in an interdependent market.

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1-s2.0-S1057521918308032-main - Accepted Manuscript
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More information

Accepted/In Press date: 13 March 2019
e-pub ahead of print date: 21 March 2019
Published date: May 2019
Keywords: Cross-market Bitcoin prices, Inefficiency, Prediction, Return and volatility spillovers, Uncertainty

Identifiers

Local EPrints ID: 429569
URI: http://eprints.soton.ac.uk/id/eprint/429569
ISSN: 1057-5219
PURE UUID: 0f180963-2172-4cea-a3b9-dfa8aa362989
ORCID for Ahmad Maaitah: ORCID iD orcid.org/0000-0001-6515-5335
ORCID for Tapas Mishra: ORCID iD orcid.org/0000-0002-6902-2326

Catalogue record

Date deposited: 29 Mar 2019 17:30
Last modified: 28 Apr 2022 04:10

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Contributors

Author: Marc Gillaizeau
Author: Ranadeva Jayasekera
Author: Ahmad Maaitah ORCID iD
Author: Tapas Mishra ORCID iD
Author: Mamata Parhi
Author: Evgeniia Volokitina

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