Bitcoin Fluctuations and the Frequency of Price Overreactions

27 Pages Posted: 21 Feb 2019

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

Viktor Oliinyk

Sumy State University

Date Written: 2018

Abstract

This paper investigates the role of the frequency of price overreactions in the cryptocurrency market in the case of BitCoin over the period 2013-2018. Specifically, it uses a static approach to detect overreactions and then carries out hypothesis testing by means of a variety of statistical methods (both parametric and non-parametric) including ADF tests, Granger causality tests, correlation analysis, regression analysis with dummy variables, ARIMA and ARMAX models, neural net models, and VAR models. Specifically, the hypotheses tested are whether or not the frequency of overreactions (i) is informative about Bitcoin price movements (H1) and (ii) exhibits seasonality (H2). On the whole, the results suggest that it can provide useful information to predict price dynamics in the cryptocurrency market and for designing trading strategies (H1 cannot be rejected), whilst there is no evidence of seasonality (H2 is rejected).

Keywords: cryptocurrency, Bitcoin, anomalies, overreactions, abnormal returns, frequency of overreactions

JEL Classification: G120, G170, C630

Suggested Citation

Caporale, Guglielmo Maria and Plastun, Oleksiy and Oliinyk, Viktor, Bitcoin Fluctuations and the Frequency of Price Overreactions (2018). CESifo Working Paper No. 7280, Available at SSRN: https://ssrn.com/abstract=3338605

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

Viktor Oliinyk

Sumy State University ( email )

Rymskyi-Korsakov str., 2
Sumy, 40000
Ukraine

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