Price overreactions in the cryptocurrency market

Arbeitspapier

This paper examines price overreactions in the case of the following cryptocurrencies: BitCoin, LiteCoin, Ripple and Dash. A 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. The 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).

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 1718

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financial Forecasting and Simulation ; Computational Techniques; Simulation Modeling
• Subject: cryptocurrency market ; Bitcoin ; overreaction ; momentum ; abnormal returns ; contrarian strategy ; trading strategy ; trading robot

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Caporale, Guglielmo Maria ; Plastun, Alex
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/175075
• Last update: 10.03.2025, 11:43 AM CET