Lottery-like momentum in the cryptocurrency market

Following the methodology of Bali et al. (2011), we construct the lottery-like portfolio based on the maximum return. First, we find that a higher maximum return leads to a higher future return among 64 cryptocurrencies. This phenomenon is called the lottery-like momentum. Controlling for the momentum effect, the lottery-like momentum still exists in the cryptocurrency market. In addition, we find that the major cryptocurrencies—Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Litecoin (LTC)—are less likely to have extreme positive returns. And the absence of extreme positive returns is persistent.     

Daily momentum profits with firm characteristics and investors’ optimism in the Taiwan market

In this paper, we examine two different investing attitudes, being conservative sentiment which mitigates the momentum effect and, alternatively, the optimistic sentiment which strengthens such an effect. Where the stock market index levels close near a previous peak level, the impact of the index on momentum profits can assist in identifying such sentiments. In this study, we investigate the price and price-size momentum strategies in Taiwan of short formation periods of less than a month. The results indicate that investors adopt optimistic attitudes towards the 5-day and 20-day highs in the market index, whereas a conservative attitude is adopted at the 52-week high. Using the quantile regression model, the results indicate that the momentum effect is mitigated when the stock index price is relatively high for higher momentum profits. On the other hand, the momentum effect is strengthened when the stock index price is relatively high for lower momentum profits. However, the high point of the stock index is not found to have any impact on the price-B/M momentum effect.     

Do cryptocurrencies provide better hedging? Evidence from major equity markets during COVID-19 pandemic

Using the five-minute interval price data of two cryptocurrencies and eight stock market indices, we examine the risk spillover and hedging effectiveness between these two assets. Our approach provides a comparative assessment encompassing the pre-COVID-19 and COVID-19 sample periods. We employ copula models to assess the dependence and risk spillover from Bitcoin and Ethereum to stock market returns during both the pre-COVID-19 and COVID-19 periods. Notably, the COVID-19 pandemic has increased the risk spillover from Bitcoin and Ethereum to stock market returns. The findings vis-à-vis portfolio weights and hedge effectiveness highlight hedging gains; however, optimal investments in Bitcoin and Ethereum have reduced during the COVID-19 pandemic, while the cost of hedging has increased during this period. The findings also confirm that cryptocurrencies cannot provide incremental gains by hedging stock market risk during the COVID-19 pandemic.     

Intraday return predictability in the cryptocurrency markets: Momentum,reversal, or both

This paper reports evidence of intraday return predictability, consisting of both intraday momentum and reversal, in the cryptocurrency market. Using high-frequency price data on Bitcoin from March 3, 2013, to May 31, 2020, it shows that the patterns of intraday return predictability change in the presence of large intraday price jumps, FOMC announcement release, liquidity levels, and the outbreak of the COVID-19. Intraday return predictability is also found in other actively traded cryptocurrencies such as Ethereum, Litecoin, and Ripple. Further analysis shows that the timing strategy based on the intraday predictors produces higher economic value than the benchmark strategy such as the always-long or the buy-and-hold. Evidence of intraday momentum can be explained in light of the theory of late-informed investors, whereas evidence of intraday reversal, which is unique to the cryptocurrency market, can be related to investors’ overreaction to non-fundamental information and overconfidence bias.     

An equilibrium model of insider trading in continuous time

We study a Bayesian–Nash equilibrium model of insider trading in continuous time. The supply of the risky asset is assumed to be stochastic. This supply can be interpreted as noise from nonrational traders (noise traders). A rational informed investor (the insider) has private information on the growth rate of the dividend flow rewarded by the risky asset. She is risk averse and maximizes her inter-temporal utility rate over an infinite time-horizon. The market is cleared by a risk neutral market maker who sets the price of the risky asset competitively as the conditional present value of future dividends, given the information supplied by the dividend history and the cumulative order flow. Due to the presence of noise traders, the market demand does not fully reveal the insider’s private information, which slowly becomes incorporated in prices. An interesting result of the paper is that a nonstandard linear filtering procedure gives an a priori form for the equilibrium strategy to be postulated. We show the existence of a stationary linear equilibrium where the insider acts strategically by taking advantage of the camouflage provided by the noise which affects the market maker’s estimates on private information. In this equilibrium, we find that the insider’s returns on the stock are uncorrelated over long periods of time. Finally, we show that the instantaneous variance of the price under asymmetric information lies between the instantaneous variance of the price under complete and incomplete information. The converse inequalities hold true for the unconditional variance of the price.     

Looking for a safe haven against American stocks during COVID-19 pandemic

This article aims to find the best safe-haven for stock investors in the American market since the COVID-19 pandemic outbreak. The research period covers March 2020–May 2022. Among the possible alternatives, we analyse the traditional ones: US bonds, gold, and silver, as well as the new ones: stable DeFi and CeFi coins, and most popular cryptocurrencies: Bitcoin and Ether. We study quantile coherency between S&P 500 and each asset and the respective conditional correlation. We show that the safe-haven properties of the assets varied over time and that centralized stablecoins could have been used as safe-haven against American stocks during the pandemics.     

Regime switches and commonalities of the cryptocurrencies asset class

In this paper we test for regime changes and possible regime commonalities in the price dynamics of Bitcoin, Ethereum, Litecoin and Monero, as representatives of the cryptocurrencies asset class. Several parametric models are considered for the joint dynamics of the basket price where parameters are modulated through a Hidden Markov Chain with finite state space. Best specifications within Gaussian and Autoregressive models for price differences are selected by means of the AIC and BIC information criteria and through an out-of-sample forecasting performance. The empirical results, within the period January 2016 to October 2019, suggest that three or four states may be relevant to describe the dynamics of each individual cryptocurrency, depending on the selection criteria, while the entire basket displays at most three common states. Finally, we show how the identification of appropriate models may be exploited in order to build profitable investment strategies on the considered cryptocurrencies.     

Why cryptocurrency markets are inefficient: The impact of liquidity and volatility

In this research, we study the multifractality, long-memory process, and efficiency hypothesis of six major cryptocurrencies (Bitcoin, Ethereum, Monero, Dash, Litecoin, and Ripple) using the time-rolling MF-DFA approach. For an in-depth analysis, this study uses the quantile regression approach to examine the determinants of efficient markets. The results show that all markets present evidence of long-memory property and multifractality. Furthermore, the inefficiency of cryptocurrency markets is time-varying, and Dash is the least inefficient market while Litecoin is the most inefficient. Finally, we find that higher liquidity improves but higher volatility weakens the efficiency of cryptocurrencies, depending on the quantiles. Therefore, we conclude that high liquidity with low volatility helps active traders to arbitrage away opportunities, resulting in market efficiency.     

Evolution of price effects after one-day abnormal returns in the US stock market

This paper provides a comprehensive analysis of price effects after one-day abnormal returns and their evolution in the US stock market, using Dow Jones Index over the period 1890–2018. We utilise several statistical tests and econometric methods (the modified cumulative abnormal return approach, regression analysis with dummy variables, R/S analysis (Hurst, 1951), and the trading simulation approach). The results suggest that a strong momentum effect between 1940 and 1980 after a day of positive abnormal returns was present in the US stock market, and it was exploitable for profit. However, after the 1980s this has since disappeared. Overall, price effects after one-day abnormal returns during the analysed period tend to be unstable in terms of their strength and direction (momentum or contrarian effect). Nowadays, the evidence for the price effects after one-day abnormal returns in the US stock market is weak. Our results, therefore, are consistent with the Adaptive Market Hypothesis (Lo, 2004).     

Price gap anomaly in the US stock market: The whole story

This paper analyses the price gap anomaly in the US stock market (comprised of the DJI, S&P 500 and NASDAQ) covering the period 1928 to 2018. This paper aims to investigate whether or not price gaps create market inefficiencies. Price gaps occur when the current day’s opening price is different from the previous day’s closing price due orders placed before the opening of the market. Several hypotheses are tested using various statistical tests (Student’s t-test, ANOVA, Mann-Whitney test), regression analysis, and special methods, that is, the modified cumulative returns and the trading simulation approaches. We find strong evidence in favour of abnormal price movements after price gaps. We observe that during a gap day prices tend to change in the direction of the gap. A trading strategy based on this anomaly was efficient in that its results were not random, indicating that this market was not efficient. The momentum effect was found to be temporary and no evidence of seasonality in price gaps was found. Lastly, our results were also contrary to the myth that price gaps tend to get filled.     

Motives and consequences of IPOs in cold periods

We analyze the motives and long-term stock price performance of firms that pursue IPOs in cold IPO periods. We find that firms are more likely to engage in an IPO during a cold period when their earnings are relatively high and are expected to decline in the future. We also find that IPO firms during a cold period are more likely to have managed their earnings prior to the IPO. Furthermore, we find that cold IPO firms experience significantly weaker stock price performance than hot IPO firms, and results are robust to different criteria for defining hot and cold IPO periods, different measures of stock price performance, and different investment holding periods. We find that investment opportunities, the backing of a venture capitalist, and an increase in earnings in the year of the IPO lead to significantly higher long term stock price performance of IPO firms. Our multivariate models confirm the adverse cold IPO period effect on stock price performance even after controlling for the IPO motives and the firm's earnings performance. Our results also hold within the post-Sarbanes-Oxley (SOX) era.     

Optimal advance selling discount strategy with future-oriented consumers

This paper examines the advance selling decisions over two periods and considers future-oriented consumers who are more concerned about the product quality than price discounts. We find that the advance selling strategy is not always best, and its merits are contingent on parameters of the market and consumers. Moreover, there is no need to set a deep advance selling discount for the retailer if consumers are highly risk averse. Next, we analyze the feasible advance selling pricing strategies for the retailer. Finally, we observe that the retailer can announce a higher advance selling price if consumers are moderately risk averse.     

Do credit market imperfections justify a central bank׳s response to asset price fluctuations?

Do credit market imperfections justify a central bank׳s response to asset price fluctuations? This study addresses this question from the perspective of equilibrium determinacy. In the model we use, prices are sticky and the working capital of firms is subject to asset values because of a lack of commitment. If credit market imperfections exist to a small degree, the Taylor principle is a necessary and sufficient condition for equilibrium determinacy, and monetary policy response to asset price fluctuations is good from the perspective of equilibrium determinacy. However, if credit market imperfections exist to a large degree such that the collateral constraint is binding, then the Taylor principle no longer guarantees equilibrium determinacy, and monetary policy response to asset price fluctuations becomes a source of equilibrium indeterminacy. We find that the existence of credit market imperfections makes it unsuitable to initiate a monetary policy response to deal with asset price fluctuations. We also find that reductions in credit market imperfections can enlarge the indeterminacy region of the model parameters.     

Do option-like incentives induce overvaluation? Evidence from experimental asset markets

One potential reason for bubbles evolving prior to the financial crisis was excessive risk taking stemming from option-like incentive schemes in financial institutions. By running laboratory asset markets, we investigate the impact of option-like incentives on price formation and trading behavior. The main results are that (i) we observe significantly higher market prices with option-like incentives than linear incentives. (ii) We further find that option-like incentives provoke subjects to behave differently and to take more risk than subjects with linear incentives. (iii) We finally show that trading at inflated prices is rational for subjects with option-like incentives since it increases their expected payout.     

Predictability of future index returns based on the 52-week high strategy

In a landmark paper, George and Hwang (2004) show that a stock's 52-week high price largely explains the momentum effect and that a strategy based on closeness to the 52-week high has better forecasting power for future returns than do momentum strategies. We find that the 52-week high strategy is unprofitable when applied to emerging markets indices, and that it is significantly less profitable than the corresponding momentum strategy. Overall the 52-week high effect is not as pervasive as the momentum effect.     

Switches in price discovery: Are U.S. traders more qualified in making valuations?

The literature on the price discovery of dually listed stocks postulates that domestic markets generally dominate in driving changes in prices and make a strong contribution to price discovery. In this study, we provide evidence challenging this view. We analyze a case of two dually listed mobile communication firms that experienced a more than 80% loss in their value in response to a regulatory decision to allow other new operators to enter the communication market in the domestic market. We find that during the negative momentum period, price discovery switched from the domestic to the foreign market, making the NYSE more important in terms of price discovery. Our findings suggest that, regardless of the origin of the news, such dramatic shocks that carry long-term implications are processed differently, with U.S. traders, rather than the domestic ones, being the main information processors.     

Disclosure quality,price efficiency,and expected returns

Using a composite disclosure quality measure, we examine the effect of disclosure quality on price delay and the effect of price delay determined by disclosure quality on expected returns in the Taiwan stock market. We find that higher disclosure quality can reduce stock price delay through more investor attention and higher stock liquidity after we control for accounting quality variables and consider the endogeneity issue. Furthermore, we show that disclosure quality reduces expected stock returns through the price efficiency channel associated with both investor attention and stock liquidity. Our results indicate that increasing a firm’s standardized information rating by one standard deviation can reduce its expected stock return by 0.63% annually. Taken together, our evidence suggests that regulatory activities enforced to improve public firms’ disclosure quality in the Taiwan stock market can make the stock market more efficient and therefore lower investors’ required return for stocks.     

The impact of individual and institutional investor sentiment on the market price of risk

We examine the effect of individual and institutional investor sentiment on the market price of risk derived from DJIA and S&P500 index returns. Consistent with behavioral asset pricing models, we find significant positive response of rational sentiment suggesting greater incentive for rational investors to engage in arbitrage when the compensation for taking risk is greater. Further, an increase in irrational optimism leads to a significant downward movement, but an increase in rational sentiment does not lead to a significant change market price of risk. These results are robust for both market indexes, DJIA and S&P500 and for both individual and institutional investor sentiment.     

Margin trade,short sales and financial stability

We model how leveraged trading activities constrained by dynamic funding availability affect financial stability. In the market, customers trade based on the fundamental value of the risky asset and make full payment for their transactions, while speculators take trading position based on margin, which is constantly adjusted by the financier, the fund provider, according to the price volatility. As a result of equilibrium price discontinuity triggered by dynamic margin requirements, trivial shocks to external supply, wealth or fundamental value can be transmitted into asset price crashes or jumps. We find that tightening margin requirements improves (mitigates) the market liquidity in the bull (bear) market, and that imposing short sale constraints helps prevent the price from falling further when the asset is sufficiently under-priced and accelerate price collapse when the asset is over-priced.

     

Pricing Experience Goods: The Effects of Customer Recognition and Commitment

In a two‐period model of nondurable experience goods, we compare the profit and social welfare effects of behavior‐based price discrimination (BBPD) and price commitment (PC) (relative to time‐consistent pricing) in a monopoly. We find that when the static, full‐information monopoly price is higher (lower) than the mean consumer valuation, PC yields higher (lower) profits and social welfare than BBPD. We also identify the market conditions under which BBPD does not increase firm profits and provide an explanation as to when the firm should discriminate against its first‐time and repeat customers, respectively.