A Seesaw Effect in the Cryptocurrency Market: Understanding the Lead–Lag Effect Among Cryptocurrencies
43 Pages Posted: 17 Oct 2019
Date Written: October 8, 2019
This paper investigates the cross predictability of intraday returns across 22 major cryptocurrencies. In contrast to the well-documented positive lead-lag effect in the equity market, we find a significantly negative lead-lag effect ("seesaw effect'') in the cryptocurrency market: The five largest cryptocurrencies (Bitcoin, Ripple, Ethereum, Litecoin, and EOScoin) negatively predict the returns of other coins but small coins do not predict the large coins. Trading strategies that exploit the cross predictability yield highly significant profits. Further analysis suggests that the "flight to hot (large) coins" and "flee from cold (large) coins" jointly drive the seesaw effect.
Keywords: Cryptocurrency, Cross Predictability, Lead–Lag, Seesaw Effect, LASSO, Money Flow
JEL Classification: G12, G14
Suggested Citation: Suggested Citation