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Cryptocurrency momentum effect: DFA and MF-DFA analysis

Author

Listed:
  • Cheng, Qing
  • Liu, Xinyuan
  • Zhu, Xiaowu

Abstract

Cryptocurrency has experienced the skyrocketing and falling back in 2018. Beyond the hype, the specific price movements of different cryptocurrencies should be investigated in a more careful way. Since the cryptocurrency market is a non-linear complex system which are not suitable analyzed by tradition methods, this paper introduces methods from econophysics. Mono-fractal analysis (detrended fluctuation analysis, DFA) is applied to investigate the price movement. Further, multi-fractal fluctuation detrended analysis (MF-DFA) is used for robustness test. Through analyzing four representative cryptocurrencies, our paper finds a strong momentum effect in BTC and ETH market, and a reversion effect in XRP and EOS when large fluctuation occurs. These findings may provide a reference for trading strategy in alternative asset allocations.

Suggested Citation

  • Cheng, Qing & Liu, Xinyuan & Zhu, Xiaowu, 2019. "Cryptocurrency momentum effect: DFA and MF-DFA analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 526(C).
    • Handle: RePEc:eee:phsmap:v:526:y:2019:i:c:s0378437119304480
    DOI: 10.1016/j.physa.2019.04.083
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    More about this item

    Keywords

    Cryptocurrency; Momentum effect; DFA; MF-DFA;
    All these keywords.

    JEL classification:

    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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