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Momentum and contrarian effects on the cryptocurrency market

Krzysztof Kość (), Paweł Sakowski and Robert Ślepaczuk
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Krzysztof Kość: Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw, Labyrinth HF
Paweł Sakowski: Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw, Labyrinth HF

No 2018-09, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: We report the results of investigation of the momentum and contrarian effects on cryptocurrency markets. The investigated investment strategies involve 100 (amongst over 1200 present as of date Nov 2017) cryptocurrencies with the largest market cap and average 14-day daily volume exceeding a given threshold value. Investment portfolios are constructed using different assumptions regarding the portfolio reallocation period, width of the ranking window, the number of cryptocurrencies in the portfolio, and the percent transaction costs. The performance is benchmarked against: (1) equally weighted and (2) market-cap weighted investments in all of the ranked assets, as well as against the buy and hold strategies based on (3) S&P500 index, and (4) BTCUSD price. Our results show a clear and significant dominance of the short-term contrarian effect over both momentum effect and the benchmark portfolios. The information ratio coefficient for the contrarian strategies often exceeds two-digit values depending on the assumed reallocation period and the width of the ranking window. Additionally, we observe a very significant diversification potential for all cryptocurrency portfolios with relation to the S&P500 index.

Keywords: cryptocurrencies; bitcoin; blockchain; momentum effect; contrarian effect; investment strategy; efficiency of financial markets; new asset class; asset allocation (search for similar items in EconPapers)
JEL-codes: C15 G11 F30 G12 G13 G14 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pay
Date: 2018
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