Crypto market dynamics in stressful conditions

Applied Economics

59 Pages Posted: 4 Mar 2020 Last revised: 26 Mar 2024

See all articles by Christophe Desagre

Christophe Desagre

Catholic University of Louvain (UCL) - Louvain Finance (LFIN); ICHEC Brussels Management School

Paolo Mazza

IESEG School of Management; LEM CNRS 9221

Mikael Petitjean

Université Polytechnique Hauts-de-France; Catholic University of Louvain (UCL) - Louvain Finance (LFIN)

Date Written: February 7, 2020

Abstract

Understanding market liquidity and trading dynamics in one of the most innovative and volatile markets in the world, is crucial from the standpoint of both regulators and investors. In contrast to stocks, very little is known about the functioning of cryptos around extreme returns (ERs). Using high-frequency order-book and trade data for the 8 most widespread cryptos on 16 trading platforms over three years, we examine the contemporaneous and lagged influence of trading activity and liquidity on the occurrence of extreme returns (ERs) in a logistic regression framework adapted to rare events. Despite its huge volatility, we show that the trading and liquidity dynamics on the crypto market around ERs is not orthogonal to what traditional markets experience in stressful conditions. The number of trades is a particularly robust driver to explain the occurrence of ERs, followed by the relative spread. The same drivers are identified for traditional markets.

Keywords: cryptocurrencies, liquidity, trading activity, bitcoin

JEL Classification: G10, G15, G23

Suggested Citation

Desagre, Christophe and Mazza, Paolo and Petitjean, Mikael, Crypto market dynamics in stressful conditions (February 7, 2020). Applied Economics, Available at SSRN: https://ssrn.com/abstract=3534023

Christophe Desagre (Contact Author)

Catholic University of Louvain (UCL) - Louvain Finance (LFIN) ( email )

Chaussée de Binche, 151
Mons, 7000
Belgium

ICHEC Brussels Management School ( email )

Rue au Bois 365
Brussels, 1150
Belgium

Paolo Mazza

IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Lille, 59 59000
France

HOME PAGE: http://https://sites.google.com/site/paolomazzaphd/

LEM CNRS 9221 ( email )

Mikael Petitjean

Université Polytechnique Hauts-de-France ( email )

IAE Valenciennes
Rue Emile Loubat
Famars, Hauts-de-France 59300
France

Catholic University of Louvain (UCL) - Louvain Finance (LFIN) ( email )

Voie du Roman Pays 34
Louvain-La-Neuve, 1348
Belgium

HOME PAGE: http://uclouvain.be/mikael.petitjean

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