Trading Volume in Cryptocurrency Markets

56 Pages Posted: 13 Sep 2018 Last revised: 15 Nov 2018

See all articles by Daniele Bianchi

Daniele Bianchi

University of Warwick - Finance Group

Alexander Dickerson

Warwick Business School; Warwick Business School

Date Written: September 8, 2018

Abstract

We study the information content of trading volume in cryptocurrency markets 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

Bianchi, Daniele and Dickerson, Alexander, Trading Volume in Cryptocurrency Markets (September 8, 2018). Available at SSRN: https://ssrn.com/abstract=3239670 or http://dx.doi.org/10.2139/ssrn.3239670

Daniele Bianchi (Contact Author)

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

HOME PAGE: http://whitesphd.com/

Alexander Dickerson

Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom
07462066472 (Phone)

Warwick Business School

Flat 83.2, Heronbank North, University of Warwick,
University of Warwick
Coventry, Warwickshire CV4 7ES
United Kingdom

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