The prevalence of price overreactions in the cryptocurrency market

Oliver Borgards and Robert Czudaj

Journal of International Financial Markets, Institutions and Money, 2020, vol. 65, issue C

Abstract: This paper examines the prevalence of price overreactions for twelve cryptocurrencies compared to the US stock market. For this purpose, we implement a dynamic modeling approach to define and test for overreactions for interday and various intraday price levels. We find evidence that price overreactions are highly prevalent in the cryptocurrency market for all frequencies, strongly supporting the overreaction hypothesis. This result is largely comparable for cryptocurrency and stock markets despite the fact that both markets are fundamentally different. However, the returns of an overreaction trading strategy are significantly higher for cryptocurrencies due to larger overreactions as the most important factor for profitability. In addition, our results also show that negative overreactions are slightly more prevalent than positive overreactions.

Keywords: Cryptocurrency; Overreaction; Mean reversion; Turning point; Stock market (search for similar items in EconPapers)
JEL-codes: C14 G12 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 (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:65:y:2020:i:c:s1042443120300780

DOI: 10.1016/j.intfin.2020.101194

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