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Kimchi premium and speculative trading in bitcoin

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  • Eom, Yunsung

Abstract

This paper examines whether cryptocurrency bubbles are loud. We focus on the relation between bitcoin prices and trading volume. Using bitcoin data from Korea and the US, we document that the elevated trading volume and price volatility can explain the ‘Kimchi premium’. In particular, as the bitcoin bubble grows, the relationship between trading volume and premium becomes clearer. This is consistent with the speculative bubble literature, which shows that the size of a bubble is positively related to trading volume. Our findings imply that fundamental uncertainty generates more dispersion in heterogeneous beliefs among investors and leads to high trading and to speculative bubbles.

Suggested Citation

  • Eom, Yunsung, 2021. "Kimchi premium and speculative trading in bitcoin," Finance Research Letters, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319301357
    DOI: 10.1016/j.frl.2020.101505
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    References listed on IDEAS

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    Cited by:

    1. Zhao, Junming & Zhang, Tianding, 2023. "Exploring the time-varying dependence between Bitcoin and the global stock market: Evidence from a TVP-VAR approach," Finance Research Letters, Elsevier, vol. 58(PA).
    2. Seo, Myung Hwan & Koo, Bonsoo & Yang, Yangzhuoran Fin, 2024. "Nonlinear dynamics of Kimchi premium," Economic Modelling, Elsevier, vol. 135(C).
    3. Lee, Jangyoun & Oh, Taehee, 2022. "The Kimchi premium and bitcoin-cashing outlets," Finance Research Letters, Elsevier, vol. 50(C).
    4. Almeida, José & Gonçalves, Tiago Cruz, 2023. "A systematic literature review of investor behavior in the cryptocurrency markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    5. Borri, Nicola & Shakhnov, Kirill, 2023. "Cryptomarket discounts," Journal of International Money and Finance, Elsevier, vol. 139(C).
    6. Ok, Hyunmin & Kim, Jinyong & Kim, Yongsik, 2023. "Is the Kimchi premium a speculative bubble?," Finance Research Letters, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Kimchi premium; Bubbles; Bitcoin; Trading volume; Heterogeneous beliefs;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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