Giver and the Receiver: Understanding Spillover Effects and Predictive Power in Cross-Market Bitcoin Prices

43 Pages Posted: 5 Mar 2020

See all articles by Ahmad ALMaaitah

Ahmad ALMaaitah

University of Southampton - Centre for Digital Finance

Tapas Mishra

Southampton Business School, University of Southampton

Mamata Parhi

University of Roehampton

Date Written: March 13, 2019

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.

Keywords: Cross-market Bitcoin prices; Return and volatility spillovers; Uncertainty; Inefficiency; Prediction

JEL Classification: C1; E4; D5

Suggested Citation

ALMaaitah, Ahmad and Mishra, Tapas and Parhi, Mamata, Giver and the Receiver: Understanding Spillover Effects and Predictive Power in Cross-Market Bitcoin Prices (March 13, 2019). International Review of Financial Analysis, Vol. 63, No. 86-104, 2019, Available at SSRN: https://ssrn.com/abstract=3481401

Ahmad ALMaaitah (Contact Author)

University of Southampton - Centre for Digital Finance ( email )

Southampton, SO17 1BJ
United Kingdom

Tapas Mishra

Southampton Business School, University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Mamata Parhi

University of Roehampton ( email )

Roehampton Lane
London, SW15 5PU
United Kingdom

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