Pricing efficiency and market efficiency of two bitcoin funds

Andrei Shynkevich

Applied Economics Letters, 2020, vol. 27, issue 20, 1623-1628

Abstract: This study explores whether pricing inefficiency, or imperfect tracking in the market value of shares of a bitcoin fund of the fund’s net asset value (NAV), makes a significant impact on the fund’s market efficiency relative to the retail bitcoin market. Two bitcoin funds whose shares are traded at the exchanges which impose more stringent criteria for transparency compared to cryptocurrency exchanges are considered. The fund whose shares have been trading without significant premium or a discount relative to its NAV is found as weak-form efficient. The fund, whose shares have been trading at a significant premium over its NAV is found inefficient due to the presence of persistent and strong positive autocorrelation in its returns. Trading of shares in the inefficiently priced fund appears to be even more emotion-driven than the already volatile and emotional trading of bitcoin and exhibits a strong herding behaviour.

Date: 2020
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DOI: 10.1080/13504851.2019.1707760

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