Bitcoin and market-(in)efficiency: a systematic time series approach

Abstract

Recently, cryptocurrencies have received substantial attention by investors given their innovative features, simplicity and transparency. We here analyse the increasingly popular Bitcoin and verify pertinence of the efficient market hypothesis. Recent research suggests that Bitcoin markets, while inefficient in their early days, transitioned into efficient markets recently. We challenge this claim by proposing simple trading strategies based on moving average filters, on classic time series models as well as on non-linear neural nets. Our findings suggest that trading performances of our designs are significantly positive; moreover, linear and non-linear approaches perform similarly except at singular time periods of the Bitcoin; finally, our results suggest that markets are becoming less rather than more efficient towards the sample end of the data.

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

“…Our analytical approach is centred on informational efficiency, particularly, the weak form of the efficient markets theory in finance which is grounded in the random walk hypothesis of Nobel laureates Paul Samuelson and Eugene Fama. Our study contributes to the existing literature, Kristoufek (2015a,b), Dyhberg (2016), Urquhart (2016), Bariviera et al (2017), Kurihara and Fukushima (2017), Nadarajah and Chu (2017), Chu et al (2017), Latif et al (2017), Katsiampa (2017), Peng et al (2018), Ardia (2018), Tiwari et al (2018Tiwari et al ( , 2019, , , Mensi (2018), Caporale and Zekokh (2019), Aggarwal (2019), Hu et al (2019), Jana et al, 2019, Bundi andWildi (2019), in three ways. Firstly, unlike a majority if previous studies which tend to focus on singular cryptocurrencies such as Bitcoin (see Bouri et al (2019); Bouoiyour and Selmi (2016); Bariviera et al (2017); Nadarajah and Chu (2017); Troster (2018); Tiwari et al (2018); ; Alvarez-Ramirez et al (2018); Aggarwal (2019)), our study examines market efficiency in 5 cryptocurrency markets (i.e.…”

BitMEX bitcoin derivatives: Price discovery, informational efficiency, and hedging effectiveness

“…For example, a recent study that uses different efficiency indices argues that the bitcoin market was inefficient even until 2018 (Jiang, Nie, & Ruan, ). For a comprehensive review of the bitcoin efficiency literature to date, see Bundi and Wildi (). Note that some research on efficiency has been extended to cryptocurrencies beyond bitcoin (Brauneis & Mestel, ; Wei, ).…”

Editorial on the Special Issue on Cryptocurrencies

“…They show that simple strategies of strong arbitrage arise by trading across different Bitcoin exchanges taking advantage of a common risk factor. Bundi and Wildi (2019) analyse the Bitcoin time-series of prices and verify the pertinence of the efficient market hypothesis. They challenge recent claims that Bitcoin markets have become more efficient recently by showing or by proposing simple trading strategies based on moving average filters, on classic time series models as well as on non-linear neural nets.…”