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The COVID-19 pandemic, volatility, and trading behavior in the bitcoin futures market

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  • Park, Beum-Jo

Abstract

This paper contributes to the literature on the coronavirus (COVID-19) pandemic impacts on the Bitcoin futures (BTCF) market and to the ongoing consideration of the dynamic relationship between volatility (or returns) and trading behavior variables, such as volume and open interest as a proxy for belief dispersion. This paper focuses on the role of the unprecedented market stress induced by the COVID-19 pandemic in the interrelations among the variables. Accordingly, this paper proposes a structural change (SC)-VAR-MGARCH model and finds the COVID-19 pandemic has initiated a significant regime change. Furthermore, the relationship between the variables in the pre-pandemic regime is notably unclear, whereas an increase in belief dispersion in the pandemic regime due to market stress reduces BTCF returns but raises trading volume and volatility evidently. The outcomes in the pandemic regime are remarkably consistent with the difference of opinions model, though existing evidence on the dynamic relations is ambiguous. Moreover, the outcomes support our hypothesis that, in addition to information flows, market stress causing traders’ behavioral biases should be considered as one of the crucial factors of tremendous price variability.

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  • Park, Beum-Jo, 2022. "The COVID-19 pandemic, volatility, and trading behavior in the bitcoin futures market," Research in International Business and Finance, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:riibaf:v:59:y:2022:i:c:s0275531921001409
    DOI: 10.1016/j.ribaf.2021.101519
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    More about this item

    Keywords

    The COVID-19 pandemic; Returns volatility; Trading behavior; Volume; Open interest; Belief dispersion; Market stress; Bitcoin futures market;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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