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Giver and the receiver: Understanding spillover effects and predictive power in cross-market Bitcoin prices

Gillaizeau, Marc, Jayasekera, Ranadeva, Maaitah, Ahmad, Mishra, Tapas, Parhi, Mamata and Volokitina, Evgeniia (2019) Giver and the receiver: Understanding spillover effects and predictive power in cross-market Bitcoin prices. International Review of Financial Analysis, 63. pp. 86-104. ISSN 1057-5219

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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.

Item Type: Article
Subjects: Q Science > QA Mathematics > Computer software
T Technology > T Technology (General) > Information Technology > Computer software
H Social Sciences > HG Finance > Banking > E-banking
H Social Sciences > HG Finance > Investment
Divisions: School of Computing > Staff Research and Publications
Depositing User: Dan English
Date Deposited: 09 Nov 2020 14:39
Last Modified: 09 Nov 2020 14:39

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