Abstract

This study conducts a systematic survey on whether the pricing behavior of cryptocurrencies is predictable. Thus, the Efficient Market Hypothesis is rejected and speculation is feasible via trading. We center interest on the Rescaled Range (R/S) and Detrended Fluctuation Analysis (DFA) as well as other relevant methodologies of testing long memory in returns and volatility. It is found that the majority of academic papers provides evidence for inefficiency of Bitcoin and other digital currencies of primary importance. Nevertheless, large steps towards efficiency in cryptocurrencies have been traced during the last years. This can lead to less profitable trading strategies for speculators.

Highlights

  • Since its introduction by Nakamoto (2008), the exponential growth of Bitcoin and other digital currencies has aroused sparkling interest concerning governments, academics, investors, traders and portfolio managers

  • The body of evidence that intends to measure the economic and financial repercussions of the Efficient Market Hypothesis (EMH) on cryptocurrencies has accumulated in an increasing pace

  • Weak-form efficiency that shows whether prices reflect the information contained in the past series of prices has been tested in the great majority of the thirty-eight studies under scrutiny

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Summary

Introduction

Since its introduction by Nakamoto (2008), the exponential growth of Bitcoin and other digital currencies has aroused sparkling interest concerning governments, academics, investors, traders and portfolio managers. This very new type of money carries characteristics both of commodity and money (Selgin 2015; Ammous 2018) and is tagged with the all-encompassing label of “cryptocurrency”. Fama defines informational efficiency in a market as the status when “prices reflect full information” in this market. Said, the present study is the first one to conduct a thorough and integrated review of the existing empirical work on whether cryptocurrency markets can outperform the market, thereby leading to abnormal profit-making by investors.

Studies about Efficiency in Bitcoin Markets
Methodology
Studies about Efficiency in Cryptocurrency Markets in General
Conclusions
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