On the (in)efficiency of cryptocurrencies: Have they taken daily or weekly random walks?

Natalya Apopo () and Andrew Phiri
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Natalya Apopo: Department of Economics, Nelson Mandela University

No 1904, Working Papers from Department of Economics, Nelson Mandela University

Abstract: The legitimacy of virtual currencies as an alternative form of monetary exchange has been the centre of an ongoing heated debated since the catastrophic global financial meltdown of 2007-2008. We contribute to the relative fresh body of empirical research on the informational market efficiency of cryptomarkets by investigating the weak-form efficiency of the top-five cryptocurrencies. In differing from previous studies, we implement random walk testing procedures which are robust to asymmetries and unobserved smooth structural breaks. Moreover, our study employs two frequencies of cryptocurrency returns, one corresponding to daily returns and the other to weekly returns. Our findings validate the random walk hypothesis for daily series hence validating the weak-form efficiency for daily returns. On the other hand, weekly returns are observed to be stationary processes which is evidence against weak-form efficiency for weekly returns. Overall, our study has important implications for market participants within cryptocurrency markets.

Keywords: Efficient Market Hypothesis (EMH); Cryptocurrencies; Random Walk Model (RWM); Flexible Fourier Form (FFF) unit root tests; Smooth structural breaks. (search for similar items in EconPapers)
JEL-codes: C22 C32 C51 E42 G14 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2019-06, Revised 2019-06
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-pay
References: View references in EconPapers View complete reference list from CitEc
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Working Paper: On the (in)efficiency of cryptocurrencies: Have they taken daily or weekly random walks? (2019)
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