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On the time-varying causal relationships that drive bitcoin returns

Author

Listed:
  • Thanasis Stengos

    (Department of Economics and Finance, University of Guelph, Guelph ON Canada)

  • Theodore Panagiotidis

    (University of Macedonia)

  • Georgios Papapanagiotou

    (University of Macedonia)

Abstract

This paper uses a Bayesian time-varying parameter vector autoregressive (TVP-VAR) model to assess the impact of alternative drivers of bitcoin returns. We consider an extended set of alternative drivers and select the most important variables using a Bayesian variable selection method. To examine the evolution of the Granger-causality relationship between the selected variables and bitcoin returns over time, we employ a new approach based on the estimates of the TVP-VAR model and heteroscedastic-consistent Granger-causality hypothesis testing. In addition, we perform impulse response function and forecast error variance decomposition analysis. The results indicate that investor sentiment and ethereum returns affect bitcoin returns over the entire sample. Trading volume emerges as an important determinant of bitcoin returns when bitcoin prices remain relatively steady.

Suggested Citation

  • Thanasis Stengos & Theodore Panagiotidis & Georgios Papapanagiotou, 2025. "On the time-varying causal relationships that drive bitcoin returns," Working Papers 2501, University of Guelph, Department of Economics and Finance.
    • Handle: RePEc:gue:guelph:2025-01
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    More about this item

    Keywords

    Bayesian VAR; time-varying Granger-causality; bitcoin; cryptocurrency; uncertainty; Google trends;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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