MAX Momentum in Cryptocurrency Markets
Posted: 29 Jun 2020
Date Written: May 14, 2020
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
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