Informational Efficiency of Cryptocurrency Markets

Posted: 6 Apr 2021 Last revised: 7 Jun 2021

See all articles by Mahendrarajah Nimalendran

Mahendrarajah Nimalendran

University of Florida - Department of Finance, Insurance and Real Estate

Praveen Pathak

University of Florida

Mariia Petryk

University of Florida - Warrington College of Business

Liangfei Qiu

University of Florida - Warrington College of Business Administration

Date Written: February 11, 2021

Abstract

We study the price discovery process of cryptocurrencies that trade in unregulated and fragmented markets and have a non-traditional business model. ICOs exhibit significant inefficiencies with VRs (Variance Ratios) less than 0.7 for up to 5-years from the issue date. IEOs with a similar business model as ICOs but underwritten by exchanges are consistently more efficient than ICOs over 200 days, while IPOs are efficient within 30 days of issue. The study suggests that due diligence by exchanges and regulators can lead to more efficient prices. In addition, several unique features of ICOs (platform, proof type, and algorithm type) influence their efficiency. Finally, we analyze the influence of social media on the efficiency of cryptocurrencies. Our results show that one standard deviation increase in public attention (Reddit points) will reduce the inefficiency measure by 5%.

Keywords: Cryptocurrency, ICO, IEO, IPO, Market Efficiency, Variance Ratios

JEL Classification: G14, C22, C23, C24

Suggested Citation

Nimalendran, Mahendrarajah and Pathak, Praveen and Petryk, Mariia and Qiu, Liangfei, Informational Efficiency of Cryptocurrency Markets (February 11, 2021). Available at SSRN: https://ssrn.com/abstract=3818818

Mahendrarajah Nimalendran (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Praveen Pathak

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Mariia Petryk

University of Florida - Warrington College of Business ( email )

Gainesville, FL 32611
United States

Liangfei Qiu

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/qiuliangfei/

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