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Price overreactions in the cryptocurrency market

Price overreactions in the cryptocurrency market PurposeThe purpose of this paper is to examine price overreactions in the case of the following cryptocurrencies: bitcoin, litecoin, ripple and dash.Design/methodology/approachA number of parametric (t-test, ANOVA, regression analysis with dummy variables) and non-parametric (Mann–Whitney U-test) tests confirm the presence of price patterns after overreactions: the next day price changes in both directions are bigger than after “normal” days. A trading robot approach is then used to establish whether these statistical anomalies can be exploited to generate profits.FindingsThe results suggest that a strategy based on counter-movements after overreactions is not profitable, whilst one based on inertia appears to be profitable but produces outcomes not statistically different from the random ones. Therefore, the overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the efficient market hypothesis (EMH).Originality/valueThe overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the EMH. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Price overreactions in the cryptocurrency market

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References (22)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0144-3585
DOI
10.1108/JES-09-2018-0310
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to examine price overreactions in the case of the following cryptocurrencies: bitcoin, litecoin, ripple and dash.Design/methodology/approachA number of parametric (t-test, ANOVA, regression analysis with dummy variables) and non-parametric (Mann–Whitney U-test) tests confirm the presence of price patterns after overreactions: the next day price changes in both directions are bigger than after “normal” days. A trading robot approach is then used to establish whether these statistical anomalies can be exploited to generate profits.FindingsThe results suggest that a strategy based on counter-movements after overreactions is not profitable, whilst one based on inertia appears to be profitable but produces outcomes not statistically different from the random ones. Therefore, the overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the efficient market hypothesis (EMH).Originality/valueThe overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the EMH.

Journal

Journal of Economic Studies – Emerald Publishing

Published: Aug 29, 2019

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