Cryptocurrency anomalies and economic constraints
Date Issued
2024
Abstract
The asset pricing literature documents a growing list of predictable patterns in the cross-section of cryptocurrency returns. But can they be forged into viable trading profits? We answer this question by examining the interplay between economic restrictions and return predictability in cryptocurrency markets. We find that size and volume anomalies originate from micro-cap coins of negligible economic importance. Conversely, the momentum effect prevails in larger cryptocurrencies but incurs substantial trading costs and extracts alphas largely from short positions. Most abnormal returns occur primarily in bull markets and fade over time. Therefore, protocols for identifying tradable cryptocurrency anomalies should focus on long positions, account for transaction costs, consider hard-to-trade coins, and emphasize performance in recent years.
Subjects
Cryptocurrency markets
;
Asset pricing
;
Anomalies
Publisher
Elsevier
Institution
Type
journal article
Journal/Edited collection
Issue
94
Start page
103218
Language
English