Up or down? Short-term reversal, momentum, and liquidity effects in cryptocurrency markets

Adam Zaremba (), Mehmet Bilgin, Huaigang Long, Aleksander Mercik and Jan J. Szczygielski

International Review of Financial Analysis, 2021, vol. 78, issue C

Abstract: We demonstrate a new powerful predictive signal for cryptocurrency returns: the last day's return. Based on daily prices of more than 3600 coins, we document that the cryptocurrencies with low last day's return significantly outperform their counterparts with high last day's return. The effect is confirmed by a battery of cross-sectional tests and portfolio sorts, and is not subsumed by a broad range of other return predictors. We argue that the daily reversals result from the illiquidity of the vast majority of traded cryptocurrencies. In consequence, the pattern is cross-sectionally dependent on liquidity, and the handful of largest and most tradeable coins exhibit daily momentum rather than a reversal. Our findings help to reconcile earlier conflicting evidence on return persistence in cryptocurrency markets.

Keywords: Cryptocurrencies; Momentum; Short-term reversal; Liquidity; Size; The cross-section of returns; Return predictability; Asset pricing (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:78:y:2021:i:c:s1057521921002349

DOI: 10.1016/j.irfa.2021.101908

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