Price overreactions in the cryptocurrency market

Guglielmo Maria Caporale and Alex Plastun

Journal of Economic Studies, 2019, vol. 46, issue 5, 1137-1155

Abstract: Purpose - The purpose of this paper is to examine price overreactions in the case of the following cryptocurrencies: bitcoin, litecoin, ripple and dash. Design/methodology/approach - A number of parametric (t-test, ANOVA, regression analysis with dummy variables) and non-parametric (Mann–WhitneyU-test) tests confirm the presence of price patterns after overreactions: the next day price changes in both directions are bigger than after “normal” days. A trading robot approach is then used to establish whether these statistical anomalies can be exploited to generate profits. Findings - The results suggest that a strategy based on counter-movements after overreactions is not profitable, whilst one based on inertia appears to be profitable but produces outcomes not statistically different from the random ones. Therefore, the overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the efficient market hypothesis (EMH). Originality/value - The overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the EMH.

Keywords: Cryptocurrencies; Price overreactions; Trading robot; G12; G17; C63 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Price Overreactions in the Cryptocurrency Market (2018)
Working Paper: Price Overreactions in the Cryptocurrency Market (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-09-2018-0310

DOI: 10.1108/JES-09-2018-0310

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