MAX Momentum in Cryptocurrency Markets

Posted: 29 Jun 2020

See all articles by Yi Li

Yi Li

Tianjin University - College of Management and Economics

Andrew Urquhart

ICMA Centre, Henley Business School

Pengfei Wang

Tianjin University - College of Management and Economics

Wei Zhang

Tianjin University - College of Management and Economics

Date Written: May 14, 2020

Abstract

This paper studies the MAX effect, the relationship between maximum daily returns and future returns in the cryptocurrency market. The cryptocurrency market is an ideal setting for the MAX effect, due to its lottery-like features (i.e., large positive skewness). Contrary to findings in other markets, we demonstrate that cryptocurrencies with higher maximum daily returns tend to achieve higher returns in the future and call this the “MAX momentum” effect. We also find that the magnitude of the MAX momentum varies with market conditions, investor sentiment, and trading months and is more pronounced in underpriced cryptocurrencies. Additionally, this effect is robust to longer holding periods, different MAX measures, and the exclusion of small cryptocurrencies.

Keywords: Cryptocurrency; MAX effect; Momentum

JEL Classification: G11;G12;G17

Suggested Citation

Li, Yi and Urquhart, Andrew and Wang, Pengfei and Zhang, Wei, MAX Momentum in Cryptocurrency Markets (May 14, 2020). Available at SSRN: https://ssrn.com/abstract=3600695 or http://dx.doi.org/10.2139/ssrn.3600695

Yi Li

Tianjin University - College of Management and Economics ( email )

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

Andrew Urquhart (Contact Author)

ICMA Centre, Henley Business School ( email )

University of Reading
Whiteknights
Reading, Berkshire RG6 6BA
United Kingdom

Pengfei Wang

Tianjin University - College of Management and Economics ( email )

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

Wei Zhang

Tianjin University - College of Management and Economics ( email )

Tianjin
China

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