Volatility and Liquidity in Cryptocurrency Markets - The Causality Approach
Barbara Będowska-Sójka , Tomasz Hinc , Agata Kliber
AbstractThe 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.
|Publication size in sheets||0.6|
|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 Polish||zmienność, płynność, kryptowaluty|
|Keywords in English||volatility, liquidity, cryptocurrency|
|Score||= 20.0, 25-05-2020, ChapterFromConference|
* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.