Are the top six cryptocurrencies efficient? Evidence from time‐varying long memory

While gaining more popularity both as a financial asset and a commodity, a number of cryptocurrencies are emerging with a loosely regulated market microstructure which is a challenge to their efficiency. We have ranked 6 out of the top 10 cryptocurrencies based on their inefficiency ratios, using a...

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Bibliographic Details
Published in:International journal of finance and economics 2022-07, Vol.27 (3), p.3730-3740
Main Authors: Keshari Jena, Sangram, Tiwari, Aviral Kumar, Doğan, Buhari, Hammoudeh, Shawkat
Format: Article
Language:English
Subjects:
cryptocurrencies
Digital currencies
Hurst exponent
inefficiency ratio
market efficiency
Securities markets
time‐varying long memory
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Summary:While gaining more popularity both as a financial asset and a commodity, a number of cryptocurrencies are emerging with a loosely regulated market microstructure which is a challenge to their efficiency. We have ranked 6 out of the top 10 cryptocurrencies based on their inefficiency ratios, using a novel time‐varying generalised Hurst exponent methodology. All the six crypto markets exhibit a time‐varying efficiency throughout the studied period, thus indicating a varying degree of exploitable profitable trading opportunities. The inefficiency ratio indicates that Bitcoin is the third most inefficient market, while the first and second most inefficient markets are DASH and NEM, respectively, thus they provide the most abnormal profit opportunities. However, the most efficient crypto markets are Ethereum and Ripple according to the order of their rankings. Further research could be performed on the factors affecting the inefficiency index to understand the efficiency determination of these cryptocurrency markets.
ISSN:1076-9307
1099-1158
DOI:10.1002/ijfe.2347