The risk–return trade-off of Bitcoin: Evidence from regime-switching analysis

Chikashi Tsuji ()
Additional contact information
Chikashi Tsuji: Chuo University

Future Business Journal, 2025, vol. 11, issue 1, 1-25

Abstract: Abstract Despite its importance, there has been little research on the relationship between Bitcoin’s risk and returns. Therefore, it is necessary to investigate the risk–return trade-off of Bitcoin. In the existing limited literature, a negative risk–return relationship in Bitcoin for high-frequency intraday time-series data has been reported. In this paper, we use lower time–frequency data and suitable models for the data frequency to examine the risk–return trade-off of Bitcoin. Specifically, this paper examines the time-series volatility risk–return trade-off of Bitcoin using standard Markov switching (MS) and MS–GARCH models with weekly Bitcoin data from 2010 to 2024. Consequently, the study reveals several new findings. Firstly, the volatility risk–return trade-off relationship is identified for Bitcoin’s log returns. Secondly, the risk–return trade-off is also found for Bitcoin’s simple returns. Thirdly, the risk–return trade-off is uncovered for Bitcoin’s risk premiums as well. Fourthly, the study shows that the risk–return trade-off relationships for Bitcoin’s log returns, simple returns, and risk premiums hold true for all business days from Monday to Friday, indicating the robustness of the results. Furthermore, the study presents significant interpretations, implications, and discussion. We emphasize that we have discovered positive weekly risk–return relationships for Bitcoin using Markov switching models for the first time. This demonstrates the novelty of our work.

Keywords: Bitcoin; Markov switching model; Markov switching GARCH model; Risk–return trade-off; Volatility (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1186/s43093-025-00551-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:futbus:v:11:y:2025:i:1:d:10.1186_s43093-025-00551-5

Ordering information: This journal article can be ordered from
https://fbj.springeropen.com/

DOI: 10.1186/s43093-025-00551-5

Access Statistics for this article

Future Business Journal is currently edited by Soad Kamel Rizk and Hayam Wahba

More articles in Future Business Journal from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().