arXiv Paper Released on Crypto Weekend Volatility Predicting Monday Market Risk

Pedram Ebadollahyvahed and Nneka Umeorah published a working paper on arXiv, testing the predictive power of weekend cryptocurrency volatility for Monday variance in stock, commodity, and fixed income markets. The study covers daily range variance data for Bitcoin, Ethereum, XRP, S&P 500, gold, and US Treasury ETFs from 2017 to 2026, adding a weekend cryptocurrency common factor to the heterogeneous autoregressive model. The paper states that the predictive power of this factor was weak before 2024, and became significant after 2024. In the post-2024 sample, for each one-standard-deviation increase in this factor, the corresponding fitted Monday market variance is 27%-54% higher; adding this factor reduces out-of-sample QLIKE loss by 11%-22%, but the statistical significance varies across markets. Endogenous estimates in the paper show that the structural breakpoint in predictive power occurred at the end of 2023, corresponding to the period when expectations for the approval of US spot Bitcoin ETFs intensified.

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