Testing For Self Exciting Jumps In Bitcoin Returns

Cryptocurrencies, especially Bitcoin (BTC), have drawn extraordinary worldwide attention. The characteristics of the BTC include a high level of speculation, extreme volatility and price discontinuity. In this paper, we investigate the self-excitation jumps in Bitcoin prices by using a new nonparametric self-excitation jumps test proposed by Boswijk et al. (2018). This paper investigates the strength of the self-excitation, the asymmetry between self-excitation triggered by positive and negative jumps and the possible different features of self-excitation in bear and bull markets. We summarize the main findings as follows. (1) There exists some degree of self-excitation effects in Bitcoin returns, which do not increase monotonically with jump size; the most self-excitation events occur with mild-sized jumps. (2) There exists asymmetry phenomenon between self-excitation when news is good and bad, i.e., the proportion of self-excitation triggered by negative jumps is larger than positive jumps. (3) Self-excitation activities are different in bear and bull markets. (4) Further empirical results show that the self-excitation effects are more pronounced if we detect the locations of jumps before implementing the self-excitation tests. The empirical findings in this paper has great significance for risk management and Bitcoin options pricing that takes into account self-exciting jump clustering.