Can Volume Predict Bitcoin Returns and Volatility? A Quantiles-Based Approach

27 Pages Posted: 25 Mar 2017

See all articles by Mehmet Balcilar

Mehmet Balcilar

Eastern Mediterranean University

Elie Bouri

Université Saint Esprit de Kaslik (USEK)

Rangan Gupta

University of Pretoria - Department of Economics

David Roubaud

Montpellier Business School

Date Written: January 10, 2017

Abstract

Prior studies on the price formation in the Bitcoin market consider the role of Bitcoin transactions at the conditional mean of the returns distribution. This study employs in contrast a non-parametric causality-in-quantiles test to analyse the causal relation between trading volume and Bitcoin returns and volatility, over the whole of their respective conditional distributions. The nonparametric characteristics of our test control for misspecification due to nonlinearity and structural breaks, two features of our data that cover 19th December 2011 to 25th April 2016. The causality-in-quantiles test reveals that volume can predict returns over the quantile range of o.25 to 0.75, i.e. except in Bitcoin bear and bull market regimes. This result highlights the importance of modelling nonlinearity and accounting for the tail behaviour when analysing causal relationships between Bitcoin returns and trading volume. We show, however, that volume cannot help predict the volatility of Bitcoin returns at any point of the conditional distribution.

Keywords: Bitcoin, Volume, Returns, Volatility, Nonparametric Quantile Causality

JEL Classification: C22, G15

Suggested Citation

Balcilar, Mehmet and Bouri, Elie and Gupta, Rangan and Roubaud, David, Can Volume Predict Bitcoin Returns and Volatility? A Quantiles-Based Approach (January 10, 2017). Economic Modelling, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2938555

Mehmet Balcilar

Eastern Mediterranean University ( email )

Gazimagusa
Turkey

HOME PAGE: http://www.mbalcilar.net

Elie Bouri (Contact Author)

Université Saint Esprit de Kaslik (USEK) ( email )

KASLIK
Lebanon

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

David Roubaud

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

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