Trading volume and return volatility of Bitcoin market: evidence for the sequential information arrival hypothesis

Abstract

This paper gives the first empirical evidence on the relationships between trading volume and return volatility of the Bitcoin denominated in fifteen foreign currencies by investigating two competing hypotheses, i.e., mixture of distribution hypothesis (MDH) and sequential information arrival hypothesis (SIAH). Allowing for both linear and nonlinear correlation and causality tests, the empirical results mainly show that: first, trading volume and return volatility are negatively correlated, implying a lack of support for the MDH; second, we document significant lead–lag relationships between trading volume and return volatility, which support the SIAH; third, the results are robust to alternative measurements of trading volume, data source and sub-period analysis. Generally speaking, these findings have practical implications for investors, who are interested in investing in Bitcoin market.