Upside risk and return timing in Bitcoin

Upside risk and return timing in Bitcoin

• Autor
• Daniel Batista
• Co-autores
• Marcelo Fernandes
• Resumo

• This paper studies the benefits of distinguishing between upside and downside volatility when timing returns in Bitcoin. Standard volatility management implicitly treats volatility spikes as signals of adverse states, thereby reducing exposure when realized volatility increases. In Bitcoin, however, volatility spikes are frequently driven by positive price movements and, as such, often indicate positive returns in the next period. We show that semivolatility timing rules that not only control for downside risk but also exploit upside risk yield substantially stronger risk-adjusted performance than both buy-and-hold and volatility-managed strategies. Neither unusually persistent volatility nor standard linear return predictability explain our findings. Instead, we document that Bitcoin exhibits an asymmetric volatility structure in which high upside-driven volatility states are disproportionately associated with positive subsequent returns.

• Palavras-chave
• Bitcoin returns, semivolatility timing, upside volatility, downside risk, asymmetric volatility, return timing, crypto assets, nonlinear predictability
• Modalidade
• Comunicação oral
• Área Temática
• Apreçamento de Ativos

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