Exploring the short-term momentum effect in the cryptocurrency market
- PDF / 558,319 Bytes
- 19 Pages / 439.37 x 666.142 pts Page_size
- 88 Downloads / 307 Views
Exploring the short‑term momentum effect in the cryptocurrency market Ha Nguyen1 · Bin Liu1 · Nirav Y. Parikh2
© Japan Association for Evolutionary Economics 2020
Abstract This study explores the short-term momentum effect in the cryptocurrency market. Utilising a comprehensive cryptocurrency dataset and the portfolio construction methods of Fama and French (J Financ Econ 33:3–56, 1993) and Carhart (J Finance 52:57–82, 1997), we construct cryptocurrency portfolios and examine their performance. The main findings are: (1) the cryptocurrency market portfolio significantly outperforms major stock markets globally in terms of risk-adjusted return; (2) from an asset pricing perspective, short-term momentum effects are significantly priced in the cryptocurrency market, while size effects are controlled, suggesting that the short-term momentum effect explains variations in the returns of cryptocurrency portfolios; and (3) the portfolios constructed according to the short-term momentum effect do not outperform the cryptocurrency market portfolio. Keywords Cryptocurrency · Bitcoin · Momentum · Asset pricing · Portfolio performance · Portfolio management · JEL classification: G11 · G12 JEL Classification G11 · G12
1 Introduction Since the inception of Bitcoin in 2009, the cryptocurrency market has experienced dramatic price fluctuation and attracted significant investment. More than 3000 cryptocurrencies are traded on cryptocurrency exchanges, constituting a billion-dollar market (Aalborg et al. 2019). Cryptocurrencies are recognised as financial assets and securities in many countries around the world. They have emerged to form a
* Bin Liu [email protected] 1
University of Wollongong, Wollongong, Australia
2
School of Economics, Finance and Marketing, College of Business, RMIT University, Melbourne, Australia
13
Vol.:(0123456789)
Evolutionary and Institutional Economics Review
new asset class, and are selected by hedge fund managers (Gurdus 2019, Pan 2019) and recommended as part of investors’ portfolios (Gregoriou 2019). In recent years, Bitcoin and other popular cryptocurrencies have garnered attention from both the general public and academic researchers. The popularity of these cryptocurrencies can be credited to the innovative technology, security, simplicity and transparency of this system (Urquhart 2016; Katsiampa 2017). As cryptocurrencies continue to evolve, their application and pricing have become prominent research issues for regulators, sophisticated investors and academics (Guo and Li 2017; Borri 2019), as there is lack of knowledge of this emerging and fast-changing market. For example, many well-known stock market effects and anomalies, such as the momentum effect (Carhart 1997) and the size effect (Fama and French 1992, 1993), have not been sufficiently investigated in the cryptocurrency market. We argue that stocks and cryptocurrencies are exchange-traded securities, so both asset classes should exhibit some commonalities. Therefore, well-known stock market effects, especially those clos
Data Loading...
