Weekend Crypto Volatility Predicts Monday Market Risk More Strongly After 2024
ORIGINAL / Weekend Crypto Volatility and Monday Market Risk
This study examines whether weekend cryptocurrency volatility predicts Monday variance in equity, commodity, and fixed-income markets, finding that predictive content strengthens significantly after 2024, with a common factor outperforming coin-specific information, though the mechanism remains unresolved.
01 ABSTRACT
Using daily range-based variance measures from 2017 to 2026, the paper augments heterogeneous autoregressive models with a common weekend cryptocurrency factor and finds weak predictive content before 2024 but significant predictive content thereafter. The authors report that a one-standard-deviation increase in the factor is associated with 27-54% higher fitted Monday variance and reduces out-of-sample QLIKE losses by 11-22%, although statistical evidence varies across markets. The authors suggest that calendar-specific volatility measures may reveal predictive information obscured by aggregate connectedness measures, but ETF-flow interactions provide no evidence of amplification, leaving the mechanism unresolved.
02 KEY FINDINGS
- After 2024, the common weekend cryptocurrency factor significantly predicts Monday variance, with a one-standard-deviation increase associated with 27-54% higher fitted Monday variance.
- Adding the factor reduces out-of-sample QLIKE losses by 11-22%, but statistical significance varies across markets.
- Friday cryptocurrency volatility does not reproduce the result, coin-specific variation adds no significant information beyond the common factor, and although a structural break is estimated in late 2023, ETF-flow interactions show no amplification effect.
AI GENERATED SUMMARY / DISCOVERED BY ARXIV Q-FIN