Trading Volume in Cryptocurrency Markets
57 Pages Posted: 13 Sep 2018 Last revised: 27 Mar 2019
Date Written: March 22, 2019
We study the information content of trading volume in cryptocurrency markets based on intraday prices and volume data over 150 exchanges and contribute to a growing literature that aims to understand the role of digital currencies as financial assets. The main results show that the interaction between lagged volume and past returns have a substantial predicting power for future price changes, both in the time series and in the cross-section. Such predictive power is economically significant both intraday and on a daily basis; an investment strategy that conditions on both past returns and lagged volume generates a substantial Sharpe ratio with almost zero correlation with Bitcoin dollar returns. These results are consistent with existing theoretical models which postulate that is primarily speculation on private information that generates the observed returns dynamics.
Keywords: Cryptocurrency, Investments, Trading Volume, Predictability, Informed Trading
JEL Classification: G12, G17, E44, C58
Suggested Citation: Suggested Citation