Trading Volume in Cryptocurrency Markets
52 Pages Posted: 13 Sep 2018 Last revised: 3 Apr 2021
Date Written: August 24, 2019
We investigate the information content of trading volume in the context of cryptocurrency markets and contribute to a growing literature that aims to understand the role of digital assets as an investment. The main results show that the interaction between lagged shocks to volume and past returns, positively and significantly correlates with future returns across cryptocurrency pairs. Such in-sample predictive power is economically significant; a reversal investment strategy that condition on low volume generates a significant net-of-fees risk-adjusted returns with low betas on standard sources of systematic risk. Although the largest economic performance pertains to an equal-weight implementation, we show that a value-weighted portfolio still generates significant risk-adjusted returns both when aggregating prices and volume across exchanges and when focusing on a single exchange.
Keywords: Cryptocurrency markets, Trading volume, Investments, Empirical asset pricing, Information asymmetry.
JEL Classification: G12, G17, E44, C58
Suggested Citation: Suggested Citation