An analysis of the return-volume relationship in decentralised finance (DeFi)

Jeffrey Chu, Stephen Chan, Yuanyuan Zhang

Research output: Contribution to journalArticlepeer-review


The decentralised finance sector has recently experienced a surge in popularity, and has emerged from the shadows of the cryptocurrency space. Although the purposes of the currencies used in this new sector differ from traditional cryptocurrencies, they still possess monetary value and can be traded using fiat currencies on specialised decentralised exchanges. This paper investigates the dynamic volume–return relationship of the five largest decentralised finance tokens, to better understand this relationship given the similarities with cryptocurrencies and the possible benefits for traders and practitioners. We implement the quantile-on-quantile regression and an extreme value theory approach to examine the relationship between the daily returns of the prices and trading volumes of decentralised finance tokens at varying quantiles and at the extreme tails. Our results suggest that when trading volume is experiencing large increases, the returns of the prices of tokens appear to be significantly positive for some cases but negative for others. The extreme volume-return dependence is found to be asymmetric in the extreme negative and positive tails of the distributions, where the dependence below extreme negative thresholds is essentially non-existent but above extreme positive thresholds it is significant. This asymmetric extreme dependence between returns and volume may be beneficial for developing trading strategies that incorporate trading volume data, and may indicate an inefficient market.
Original languageEnglish
Pages (from-to)236-254
JournalInternational Review of Economics and Finance
Early online date19 Jan 2023
Publication statusPublished - 1 May 2023


  • OLS regression
  • Quantile-on-quantile regression
  • Extreme correlation
  • Decentralised finance


Dive into the research topics of 'An analysis of the return-volume relationship in decentralised finance (DeFi)'. Together they form a unique fingerprint.

Cite this