Volatility and Liquidity in Cryptocurrency Markets - The Causality Approach

Barbara Będowska-Sójka , Tomasz Hinc , Agata Kliber

Abstract

The dependency between volatility and liquidity is thoroughly examined in the contemporary literature on the financial markets. Especially, on the stock markets, liquidity tends to evaporate when volatility increases. Still, very few papers examine such relationships within the cryptocurrency markets. In this paper, we verify whether the volatility and liquidity of cryptocurrencies are interrelated. Our sample consists of 12 highly capitalized and traded cryptocurrencies. We consider both daily and weekly liquidity measures and thus extend the set of proxies. In order to examine the dependency between cryptocurrencies, the causality approach is employed. We use an asymmetric causality test to separate the influence of growths and declines of volatility to the changes of liquidity direction and the other way around. Overall, the empirical results indicate, inter alia, that high volatility is a Granger cause to high liquidity, which means that high volatility attracts investors and induce higher interest in the new financial instruments.
Author Barbara Będowska-Sójka (WIiGE / KE)
Barbara Będowska-Sójka,,
- Department of Econometrics
, Tomasz Hinc (WIiGE / KBO)
Tomasz Hinc,,
- Department of Operations Research
, Agata Kliber (WIiGE / KMS)
Agata Kliber,,
- Department of Applied Mathematics
Pages31-43
Publication size in sheets0.6
Book Jajuga Krzysztof, Locarek-Junge Hermann, Orłowski Lucjan T., Staehr Karsten (eds.): Contemporary Trends and Challenges in Finance : Proceedings from the 5th Wroclaw International Conference in Finance, Springer Proceedings in Business and Economics, 2020, Springer, ISBN 978-3-030-43077-1, [978-3-030-43078-8], 250 p., DOI:10.1007/978-3-030-43078-8
Keywords in Polishzmienność, płynność, kryptowaluty
Keywords in Englishvolatility, liquidity, cryptocurrency
DOIDOI:10.1007/978-3-030-43078-8_3
URL https://link.springer.com/chapter/10.1007%2F978-3-030-43078-8_3
Languageen angielski
Score (nominal)20
Score sourcepublisherList
ScoreMinisterial score = 20.0, 25-05-2020, ChapterFromConference
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