Time-dependent relations between gaps and returns in a Bitcoin order book

TL;DR

This paper investigates the dynamic relationship between order book gaps and returns in Bitcoin trading, revealing that causality is primarily instantaneous rather than persistent over time.

Contribution

It provides the first analysis of the temporal causality between gaps and returns, emphasizing the limited scope of their causal relationship.

Findings

Causality between gaps and returns is mainly instantaneous.

Order book gaps are predictive of immediate returns.

Limited long-term causal influence detected.

Abstract

Several studies have shown that large changes in the returns of an asset are associated with the sized of the gaps present in the order book In general, these associations have been studied without explicitly considering the dynamics of either gaps or returns. Here we present a study of these relationships. Our results suggest that the causal relationship between gaps and returns is limited to instantaneous causation.