Liquidity in the cryptocurrency market and commonalities across anomalies

Bingbing Dong, Lei Jiang, Jinyu Liu and Yifeng Zhu

International Review of Financial Analysis, 2022, vol. 81, issue C

Abstract: We examine how liquidity affects cryptocurrency market efficiency and study commonalities in anomaly performance in cryptocurrency markets. Based on the unique features of cryptocurrencies, we build a model with anonymous traders valuing cryptocurrencies as payments for goods and investment assets, and find that decreases in funding liquidity translate into lower asset liquidity in the cryptocurrency market. Empirically, we observe that many widely recognized stock market anomalies also exist in the cryptocurrency market, although some have opposite long and short legs. We also find evidence that a decrease in cryptocurrency liquidity enhances anomalous returns while preventing the cryptocurrency market from achieving efficiency.

Keywords: Cryptocurrency; Asset liquidity; Funding liquidity; Anomalies (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:81:y:2022:i:c:s1057521922000679

DOI: 10.1016/j.irfa.2022.102097

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