Intraday Return Predictability in the Cryptocurrency Markets: Momentum, Reversal, or Both

42 Pages Posted: 10 May 2022 Last revised: 14 Jun 2022

See all articles by Zhuzhu Wen

Zhuzhu Wen

PBCSF, Tsinghua University

Elie Bouri

Lebanese American University

Yahua Xu

Central University of Finance and Economics (CUFE) - China Economics and Management Academy

Yang Zhao

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Date Written: April 10, 2022

Abstract

This paper reports evidence of intraday return predictability, consisting of both intraday momentum and reversal, in the cryptocurrency market. Using high-frequency price data on Bitcoin from March 3, 2013, to May 31, 2020, it shows that the patterns of intraday return predictability change in the presence of large intraday price jumps, FOMC announcement release, liquidity levels, and the outbreak of the COVID-19. Intraday return predictability is also found in other actively traded cryptocurrencies such as Ethereum, Litecoin, and Ripple. Further analysis shows that the timing strategy based on the intraday predictors produces higher economic value than the benchmark strategy such as the always-long or the buy-and-hold. Evidence of intraday momentum can be explained in light of the theory of late-informed investors, whereas evidence of intraday reversal, which is unique to the cryptocurrency market, can be related to investors’ overreaction to non-fundamental information and overconfidence bias.

Keywords: intraday return predictability; cryptocurrency markets; Bitcoin; momentum; reversal; economic value; market timing strategy

JEL Classification: G1; C5; Q3; Q4

Suggested Citation

Wen, Zhuzhu and Bouri, Elie and Xu, Yahua and Zhao, Yang, Intraday Return Predictability in the Cryptocurrency Markets: Momentum, Reversal, or Both (April 10, 2022). Available at SSRN: https://ssrn.com/abstract=4080253 or http://dx.doi.org/10.2139/ssrn.4080253

Zhuzhu Wen

PBCSF, Tsinghua University ( email )

Elie Bouri (Contact Author)

Lebanese American University ( email )

P.O.Box 36
Chouran-Beirut 1102 2801
Byblos
Lebanon

Yahua Xu

Central University of Finance and Economics (CUFE) - China Economics and Management Academy ( email )

NO.39 South College Road
Haidian District
Beijing, 100081
China

Yang Zhao

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

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