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A singular value decomposition approach for testing the efficiency of Bitcoin and Ethereum markets

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  • Alvarez-Ramirez, Jose
  • Rodriguez, Eduardo

Abstract

This letter revisits the informationally efficiency of the two major cryptocurrencies Bitcoin (2013–2021) and Ethereum (2016–2021). The analysis is based on the computation of the singular value decomposition (SVD) entropy of a matrix formed by lagged vectors of price returns. The computed entropy is compared with a reference obtained from uncorrelated time series to decide whether the rows of the lagged matrix are uncorrelated. The procedure was implemented over a sliding window to assess the time variations of the entropy. The results show that the markets are informationally efficient most of time over different scales, except for some short periods that are linked to the 2016–2017 price-boom period and the 2020 Covid-19 economic downturn.

Suggested Citation

  • Alvarez-Ramirez, Jose & Rodriguez, Eduardo, 2021. "A singular value decomposition approach for testing the efficiency of Bitcoin and Ethereum markets," Economics Letters, Elsevier, vol. 206(C).
    • Handle: RePEc:eee:ecolet:v:206:y:2021:i:c:s0165176521002743
    DOI: 10.1016/j.econlet.2021.109997
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Zhuhua Jiang & Walid Mensi & Seong-Min Yoon, 2023. "Risks in Major Cryptocurrency Markets: Modeling the Dual Long Memory Property and Structural Breaks," Sustainability, MDPI, vol. 15(3), pages 1-15, January.
    2. Hyeonoh Kim & Eojin Yi & Jooyoung Jeon & Taeyoung Park & Kwangwon Ahn, 2024. "After the Split: Market Efficiency of Bitcoin Cash," Computational Economics, Springer;Society for Computational Economics, vol. 64(1), pages 411-427, July.
    3. Shimeng Shi & Jia Zhai & Yingying Wu, 2024. "Informational inefficiency on bitcoin futures," The European Journal of Finance, Taylor & Francis Journals, vol. 30(6), pages 642-667, April.
    4. Urquhart, Andrew, 2022. "Under the hood of the Ethereum blockchain," Finance Research Letters, Elsevier, vol. 47(PA).
    5. Akhtaruzzaman, Md & Boubaker, Sabri & Nguyen, Duc Khuong & Rahman, Molla Ramizur, 2022. "Systemic risk-sharing framework of cryptocurrencies in the COVID–19 crisis," Finance Research Letters, Elsevier, vol. 47(PB).
    6. Partida, Alberto & Gerassis, Saki & Criado, Regino & Romance, Miguel & Giráldez, Eduardo & Taboada, Javier, 2022. "The chaotic, self-similar and hierarchical patterns in Bitcoin and Ethereum price series," Chaos, Solitons & Fractals, Elsevier, vol. 165(P2).
    7. Andrew Phiri, 2022. "Can wavelets produce a clearer picture of weak-form market efficiency in Bitcoin?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(3), pages 373-386, September.

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    More about this item

    Keywords

    Cryptocurrencies; Market efficiency; Entropy; Singular value decomposition;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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