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How does the informed trading impact Bitcoin returns and volatility?

Author

Listed:
  • Jying-Nan Wang
  • Hung-Chun Liu
  • Shuang Zhang
  • Yuan-Teng Hsu

Abstract

This study employed an augmented AR-GJRGARCH model that incorporates an intraday-based buy-sell order size imbalance measure to explore how informed trading behaviour/activity impacted Bitcoin returns and volatility from January 2014 to February 2019. Our results show that the informed trading behaviour dominated by sell-order significantly led to decreased concurrent Bitcoin returns for alternative sample periods. However, the informed trading behaviour dominated by buy-order related positively to Bitcoin returns only for the full sample period. Moreover, the informed trading activity helped to reduce Bitcoin’s volatility, which is consistent with expectations based on dispersion of beliefs models. Finally, we uncovered a positive (inverted) asymmetric volatility effect for both the full and the rising sample periods, indicating the presence of the ‘fear of missing out’ psychological effect.

Suggested Citation

  • Jying-Nan Wang & Hung-Chun Liu & Shuang Zhang & Yuan-Teng Hsu, 2021. "How does the informed trading impact Bitcoin returns and volatility?," Applied Economics, Taylor & Francis Journals, vol. 53(28), pages 3223-3233, June.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:28:p:3223-3233
    DOI: 10.1080/00036846.2020.1814944
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    Citations

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    Cited by:

    1. Natashekara, Karthik & Sampath, Aravind, 2024. "Informed trading and cryptocurrencies. New evidence using tick-by-tick data," Finance Research Letters, Elsevier, vol. 61(C).
    2. Scharnowski, Matthias & Scharnowski, Stefan & Zimmermann, Lukas, 2023. "Fan tokens: Sports and speculation on the blockchain," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
    3. Bouri, Elie & Jalkh, Naji, 2023. "Spillovers of joint volatility-skewness-kurtosis of major cryptocurrencies and their determinants," International Review of Financial Analysis, Elsevier, vol. 90(C).
    4. Ullah, Subhan & Attah-Boakye, Rexford & Adams, Kweku & Zaefarian, Ghasem, 2022. "Assessing the influence of celebrity and government endorsements on bitcoin’s price volatility," Journal of Business Research, Elsevier, vol. 145(C), pages 228-239.
    5. Wang, Jying-Nan & Liu, Hung-Chun & Lee, Yen-Hsien & Hsu, Yuan-Teng, 2023. "FoMO in the Bitcoin market: Revisiting and factors," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 244-253.
    6. Wang, Yaqi & Wang, Chunfeng & Sensoy, Ahmet & Yao, Shouyu & Cheng, Feiyang, 2022. "Can investors’ informed trading predict cryptocurrency returns? Evidence from machine learning," Research in International Business and Finance, Elsevier, vol. 62(C).

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