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Momentum trading in cryptocurrencies: Short-term returns and diversification benefits

Momentum trading in cryptocurrencies: Short-term returns and diversification benefits
Momentum trading in cryptocurrencies: Short-term returns and diversification benefits
We test for the presence of momentum effects in cryptocurrency market and estimate dynamic conditional correlations (DCCs) of returns between momentum portfolios of cryptocurrencies and traditional assets. First, investment portfolios are constructed adherent to the classic J/K momentum strategy, using daily data from twelve cryptocurrencies for over a period of three years. We identify the existence of momentum effect, which is highly significant for short-term portfolios but disappears over the longer term. Second, we show that cross correlations of weekly returns between momentum portfolio of cryptocurrencies and traditional assets are unlike correlations of returns between traditional assets. Third, we find that momentum portfolios of cryptocurrencies not only offer diversification benefits but also can be a hedge and safe haven for traditional assets.
Momentum, Cryptocurrency, Dynamic Conditional Correlation
0165-1765
Tzouvanas, Panagiotis
f8c0fae8-aebe-406b-9df5-e40fd4c81fbb
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Tsend-Ayush, Bayasgalan
34df879d-604c-4dbb-a505-2e4ede9d0538
Tzouvanas, Panagiotis
f8c0fae8-aebe-406b-9df5-e40fd4c81fbb
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Tsend-Ayush, Bayasgalan
34df879d-604c-4dbb-a505-2e4ede9d0538

Tzouvanas, Panagiotis, Kizys, Renatas and Tsend-Ayush, Bayasgalan (2019) Momentum trading in cryptocurrencies: Short-term returns and diversification benefits. Economics Letters. (doi:10.1016/j.econlet.2019.108728).

Record type: Article

Abstract

We test for the presence of momentum effects in cryptocurrency market and estimate dynamic conditional correlations (DCCs) of returns between momentum portfolios of cryptocurrencies and traditional assets. First, investment portfolios are constructed adherent to the classic J/K momentum strategy, using daily data from twelve cryptocurrencies for over a period of three years. We identify the existence of momentum effect, which is highly significant for short-term portfolios but disappears over the longer term. Second, we show that cross correlations of weekly returns between momentum portfolio of cryptocurrencies and traditional assets are unlike correlations of returns between traditional assets. Third, we find that momentum portfolios of cryptocurrencies not only offer diversification benefits but also can be a hedge and safe haven for traditional assets.

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Momentum trading in cryptocurrencies - Short-term returns and diversification benefits - Accepted Manuscript
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Accepted/In Press date: 27 September 2019
e-pub ahead of print date: 30 September 2019
Keywords: Momentum, Cryptocurrency, Dynamic Conditional Correlation

Identifiers

Local EPrints ID: 434719
URI: http://eprints.soton.ac.uk/id/eprint/434719
ISSN: 0165-1765
PURE UUID: ebbb732b-9cdc-432d-94a8-14a946d82da7
ORCID for Renatas Kizys: ORCID iD orcid.org/0000-0001-9104-1809

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Date deposited: 07 Oct 2019 16:30
Last modified: 28 Apr 2022 06:09

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Contributors

Author: Panagiotis Tzouvanas
Author: Renatas Kizys ORCID iD
Author: Bayasgalan Tsend-Ayush

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