Understanding temporal dynamics of jumps in cryptocurrency markets: evidence from tick-by-tick data

Danial Saef (), Odett Nagy, Sergej Sizov and Wolfgang Karl Härdle
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Danial Saef: Humboldt University of Berlin
Odett Nagy: Corvinus University of Budapest
Wolfgang Karl Härdle: Humboldt University of Berlin

Digital Finance, 2024, vol. 6, issue 4, No 1, 605-638

Abstract: Abstract Cryptocurrency markets have recently attracted significant attention due to their potential for high returns; however, their underlying dynamics, especially those concerning price jumps, continue to be explored. Building on previous research, this study examines the presence and clustering of jumps in an extensive tick data set covering six major cryptocurrencies traded against Tether on seven leading exchanges worldwide over nearly 2.5 years. Our analysis reveals that jumps occur on up to 58% of trading days, with negative jumps predominating in both frequency and size. Notably, we observe systematic clustering of jumps over time, especially in Bitcoin and Ethereum, indicating interconnected market dynamics and potential predictive power for market movements. By employing high-frequency econometric tools, we identify temporal patterns in jump occurrence, highlighting heightened activity during specific trading hours and days. We also find evidence of jumps influencing intraday returns, underscoring their significance in short-term price dynamics. Our findings enhance understanding of the cryptocurrency market microstructure and offer insights for risk management and predictive modeling strategies. Nevertheless, further research is needed to develop robust methodologies for detecting and analyzing co-jumps across multiple assets.

Keywords: Jumps; Market microstructure noise; High-frequency data; Cryptocurrencies; CRIX; Option pricing (search for similar items in EconPapers)
JEL-codes: C01 C02 C14 C58 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s42521-024-00116-1

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