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Is there a risk-return trade-off in cryptocurrency markets? The case of Bitcoin

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  • Ahmed, Walid M.A.

Abstract

This study examines the link between returns and volatility of Bitcoin, at both contemporaneous and intertemporal levels, employing high-frequency data. The intraday price variability is proxied by four different measures, namely realized variance, jump variation, downside realized semivariance, and negative signed jump variation. The empirical analysis suggests that all realized volatility proxies have a significant and negative contemporaneous relation with Bitcoin returns. On the other hand, there is weak evidence of a negative intertemporal relation between returns and realized variance, jump variation, and downside realized semivariance. Accordingly, the existence of a positive risk-return trade-off in Bitcoin markets seems to be unsubstantiated. The findings are robust, even after controlling for a number of relevant determinants of the price formation process of Bitcoin.

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  • Ahmed, Walid M.A., 2020. "Is there a risk-return trade-off in cryptocurrency markets? The case of Bitcoin," Journal of Economics and Business, Elsevier, vol. 108(C).
    • Handle: RePEc:eee:jebusi:v:108:y:2020:i:c:s0148619519302206
    DOI: 10.1016/j.jeconbus.2019.105886
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    More about this item

    Keywords

    Cryptocurrency markets; Bitcoin; Risk-return trade-off; Realized volatility measures; Intraday data;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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