Liquidity and market efficiency in cryptocurrencies

By Wang Chun Wei. Economics Letters, 2018

324 citations recorded by the source corpus.

We examine the liquidity of 456 different cryptocurrencies, and show that return predictability diminishes in cryptocurrencies with high market liquidity. We show that whilst Bitcoin returns are showing signs of efficiency, numerous cryptocurrencies still exhibit signs of autocorrelation and non-independence. Our findings also show a strong relationship between the Hurst exponent and liquidity on a cross-sectional basis. Therefore, we conclude that liquidity plays a significant role in market efficiency and return predictability of new cryptocurrencies.

Subfields: Economics and Econometrics, Finance, Information Systems

View Paper: https://www.semanticscholar.org/paper/408687691e3fc29950250da71d4be91697471704

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Citations in the corpus

Cryptocurrencies as a financial asset: A systematic analysis (2019, methodology): “Finally, the analysis of 456 cryptocurrencies performed by Wei [2018] shows that return predictability diminishes in cryptocurrencies with high market liquidity, contributing to cryptocurrency efficiency and liquidity debates.”
A three-factor pricing model for cryptocurrencies (2020, background): “Recently, Wei (2018) examines 456 different cryptocurrencies and shows that the less inefficient the cryptocurrency is, the more illiquid the cryptocurrency.”
Cryptocurrency market contagion: Market uncertainty, market complexity, and dynamic portfolios (2019, result): “In close relation to the above, Phillip et al. (2018) document that lower market capitalization results in larger variability which is supported by Wei (2018) who finds that volatility declines with increasing liquidity.”