Bitcoin Calendar Effects in an Asymmetric Stochastic Volatility Model

Summary

This study examines whether Bitcoin returns and volatility vary by day of the week and around holidays. It applies an asymmetric stochastic volatility model to Bitcoin data covering January 2013 through August 2019, and compares the observed patterns with characteristics of stocks, currencies, and gold. The analysis also considers Bitcoin’s response to federal funds and its role as a medium of exchange.

The reported estimates show a modest weekend pattern in volatility, with Saturday and Sunday differing from the other weekdays. Among holidays in Japan, China, Germany, and the United States, only the United States shows a positive post-holiday return effect and a weak positive pre-holiday volatility effect. The model does not find an asymmetry effect. These are historical findings for the studied period and model; the text supplies no effect sizes or evidence that the patterns persisted afterward. The comparison places Bitcoin between the examined asset classes on several calendar and financial characteristics, rather than establishing a definitive classification as a currency.

Key ideas

• An asymmetric stochastic volatility model is used to study Bitcoin calendar effects.
• Bitcoin volatility shows a modest weekend difference relative to the rest of the week.
• The reported post-holiday return and pre-holiday volatility effects occur only for US holidays.
• The study reports no asymmetry effect in Bitcoin returns or volatility.
• The findings cover a historical sample and do not establish that the patterns persist.

Tags

# Is Bitcoin really a currency? A viewpoint of a stochastic volatility model


# Is Bitcoin really a currency? A viewpoint of a stochastic volatility model









Using the asymmetric stochastic volatility model, this study investigates the day-of-the-week and holiday effects on the returns and volatility of Bitcoin from January 1, 2013 to August 31, 2019; in this context, we also discuss the characteristics of Bitcoin as a financial asset. The results of the estimation are threefold. First, the finding shows a small day-of-the week effect in volatility on Saturday and Sunday than in the rest of the week. Second, although the holiday effects are examined in active trading countries, namely Japan, China, Germany, and the United States, the positive post-holiday effect on the returns and weak positive pre-holiday effect on the volatility are only observed in the United States. Finally, the asymmetry effect is not observed. A comparison of Bitcoin to several assets such as stock, currency, and gold shows Bitcoin's positioning between stock, currency, and gold in relation to the week and holiday effects, its reaction to federal funds and medium of exchange characteristics, and the lack of asymmetry effect.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.