Momentum Effects in the Cryptocurrency Market After One-Day Abnormal Returns

Guglielmo Maria Caporale and Alex Plastun

No 7917, CESifo Working Paper Series from CESifo

Abstract: This paper examines whether there exists a momentum effect after one-day abnormal returns in the cryptocurrency market. For this purpose a number of hypotheses of interest are tested for the BitCoin, Ethereum and LiteCoin exchange rates vis-à-vis the US dollar over the period 01.01.2017-01.09.2019, specifically whether or not: H1) the intraday behaviour of hourly returns is different on overreaction days compared to normal days; H2) there is a momentum effect on overreaction days, and H3) after one-day abnormal returns. The methods used for the analysis include a number of statistical methods as well as a trading simulation approach. The results suggest that hourly returns during the day of positive/negative overreactions are significantly higher/lower than those during the average positive/negative day. Overreactions can usually be detected before the day ends by estimating specific timing parameters. Prices tend to move in the direction of the overreaction till the end of the day when it occurs, which implies the existence of a momentum effect on that day giving rise to exploitable profit opportunities. This effect (together with profit opportunities) is also observed on the following day. In two cases (BTCUSD positive overreactions and ETHUSD negative overreactions) a contrarian effect is detected instead.

Keywords: cryptocurrencies; anomalies; momentum effect; overreactions; abnormal returns; patterns (search for similar items in EconPapers)
JEL-codes: C63 G12 G17 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Momentum effects in the cryptocurrency market after one-day abnormal returns (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7917

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