Price Overreactions in the Cryptocurrency Market

25 Pages Posted: 20 Mar 2018

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Oleksiy Plastun

Sumy State University

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Date Written: February 05, 2018

Abstract

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).

Keywords: cryptocurrency market, Bitcoin, overreaction, momentum, abnormal returns, contrarian strategy, trading strategy, trading robot

JEL Classification: G120, G170, C630

Suggested Citation

Caporale, Guglielmo Maria and Plastun, Oleksiy, Price Overreactions in the Cryptocurrency Market (February 05, 2018). CESifo Working Paper Series No. 6861. Available at SSRN: https://ssrn.com/abstract=3143399

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Oleksiy Plastun

Sumy State University ( email )

Rymskyi-Korsakov str., 2
Sumy, 40000
Ukraine

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