Why cryptocurrency markets are inefficient: The impact of liquidity and volatility

Khamis Hamed Al-Yahyaee, Walid Mensi, Hee-Un Ko, Seong-Min Yoon and Sang Hoon Kang

The North American Journal of Economics and Finance, 2020, vol. 52, issue C

Abstract: In this research, we study the multifractality, long-memory process, and efficiency hypothesis of six major cryptocurrencies (Bitcoin, Ethereum, Monero, Dash, Litecoin, and Ripple) using the time-rolling MF-DFA approach. For an in-depth analysis, this study uses the quantile regression approach to examine the determinants of efficient markets. The results show that all markets present evidence of long-memory property and multifractality. Furthermore, the inefficiency of cryptocurrency markets is time-varying, and Dash is the least inefficient market while Litecoin is the most inefficient. Finally, we find that higher liquidity improves but higher volatility weakens the efficiency of cryptocurrencies, depending on the quantiles. Therefore, we conclude that high liquidity with low volatility helps active traders to arbitrage away opportunities, resulting in market efficiency.

Keywords: Cryptocurrency; Efficiency; Long-memory; MF-DFA; Quantile regression approach (search for similar items in EconPapers)
JEL-codes: C58 G14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:52:y:2020:i:c:s1062940820300656

DOI: 10.1016/j.najef.2020.101168

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