A Study on Calendar Anomalies in the Cryptocurrency Market
Cryptocurrencies are sub-classes of digital currencies. Trading of these currencies have gained momentum during the past few years and have become new investment avenues for investors. An understanding on the market anomalies, which are patterns in asset
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Abstract. Cryptocurrencies are sub-classes of digital currencies. Trading of these currencies have gained momentum during the past few years and have become new investment avenues for investors. An understanding on the market anomalies, which are patterns in asset prices would help the investors to adopt suitable strategies while trading in this asset class. This study aims to examine the presence of three calendar anomalies, day of the week, turn of the month, and year end effect in the cryptocurrencies. The top five cryptocurrencies which constitute a major share of the market capitalization value are selected for the study and the period of study is from July 23, 2017 to July 9, 2020. Dummy Variable Regression using GARCH (1, 1) model was employed on the log value of returns of the cryptocurrencies. The study provides evidence on the existence of anomalies during Thursdays, the months March and April, and at the turn of the year. Keywords: Cryptocurrency Efficient market hypothesis Calendar anomalies
1 Introduction Cryptocurrencies are subsets of the digital currencies [1] which gained prominence as an important type of digital currency during recent years. It has also become a new investment option for investors and trading in these cryptocurrencies have become colossal. There are more than 3500 types of cryptocurrencies being traded with an overall market capitalization of approximately $350 billion as on August 5, 2020 (Source: Coinmarketcap.com). Among the cryptocurrencies, Bitcoin began operational in the year 2009 as the first decentralised cryptocurrency. It remains as the market leader in terms of trading with a market capitalization of $208 billion as of August 5, 2020 constituting 60% of the total market share. Cryptocurrencies introduced subsequently are primarily clones of Bitcoin and other major cryptocurrencies and have novel features and certain fundamental differences. These cryptocurrencies have forayed into the market share of Bitcoin which has decreased from 86% (March 2015) to 60% (August 2020). While regulatory frameworks of cryptocurrencies are debated by policy makers across several countries, cryptocurrencies have also garnered interest of researchers. Several dimensions of the cryptocurrencies were studied by researchers, the asset class of cryptocurrencies [2], volatility of cryptocurrencies [3], dynamic © IFIP International Federation for Information Processing 2020 Published by Springer Nature Switzerland AG 2020 S. K. Sharma et al. (Eds.): TDIT 2020, IFIP AICT 617, pp. 166–177, 2020. https://doi.org/10.1007/978-3-030-64849-7_16
A Study on Calendar Anomalies in the Cryptocurrency Market
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linkages of cryptocurrencies [4], investment options [5] and market anomalies [6]. The Efficient Market Hypothesis (EMH) laid on the foundations of the financial theories pertaining to market efficiency states that the asset prices reflect all available information [19]. However, in real time situations the functioning of market deviates from the rules of EMH and these deviations are called anom
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