Cross-sectional reversal portfolios in the cryptocurrency market and market uncertainty
27 Pages Posted: 21 Nov 2024 Last revised: 9 Dec 2024
Date Written: December 09, 2024
Abstract
This study explores whether a behavioral approach can enhance the profitability of cross-sectional reversal strategy in the cryptocurrency market. Building on findings from stock and commodity futures markets, we propose a new decomposition method for reversal portfolios where the highest and lowest prices during the formation periods serve as anchoring points. We find that these reversal portfolios generate higher returns than conventional cross-sectional momentum and reversal portfolios. These results hold across different portfolio formation periods, suggesting the presence of heterogeneous investment horizons. Moreover, our cryptocurrency reversal portfolios act as a hedge against increases in stock and gold market uncertainty.
Keywords: Cryptocurrencies, Reversal, Momentum, Behavioral Finance, Market uncertainty
Suggested Citation: Suggested Citation
Cross-sectional reversal portfolios in the cryptocurrency market and market uncertainty