Do clean and dirty cryptocurrencies connect financial assets differently? The perspective of market inefficiency

Abstract

Empirical violation of the efficient market hypothesis implies biased inferences drawn directly by price-related information, calling for accommodating the role of informational inefficiency in connecting related markets. This paper studies the cross-market linkage of the inefficiency degree of clean and dirty cryptocurrencies with traditional and green assets under a full distributional framework. By using a quantile-on-quantile method and an international dataset, our findings support the presence of market inefficiency for both cryptocurrencies and financial assets, which varies our time. The linkage between clean and dirty cryptocurrencies, as well as traditional and green financial assets is found to be generally positive but fluctuates at extreme market conditions, being led by the presence of cross-border arbitrage between cryptocurrency markets and the financial system.