Trend patterns statistics for assessing irreversibility in cryptocurrencies: time-asymmetry versus inefficiency

Jessica Morales Herrera and Ra\'ul Salgado-Garc\'ia

Papers from arXiv.org

Abstract: In this paper, we present a measure of time irreversibility using trend pattern statistics. We define the irreversibility index as the Kullback-Leibler divergence between the distribution of uptrends subsequences (increasing trends) and the corresponding downtrends subsequences distribution (decreasing trends) in a time series. We use this index to analyze the degree of irreversibility in log return series over time, specifically focusing on five cryptocurrencies: Bitcoin, Ethereum, Ripple, Litecoin, and Bitcoin Cash. Our analysis reveals a strong indication of irreversibility in all these cryptocurrencies and the characteristic evolves over time. We additionally evaluate the market efficiency for these cryptocurrencies based on a recently proposed information-theoretic measure. By comparing inefficiency and irreversibility, we explore the relationship between these statistical features. This comparison provides insight into the non-trivial relationship between inefficiency and irreversibility.

Date: 2023-06
New Economics Papers: this item is included in nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2307.08612

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