Affiliation:
1. Nolan School of Hotel Administration, Cornell University, 537 Statler Hall, Ithaca, NY 14850, USA
2. Samuel Curtis Johnson Graduate School of Management, Cornell University, 451 Sage Hall, Ithaca, NY 14850, USA
3. Kamakura Corporation, Honolulu, HI 96815, USA
Abstract
Cryptocurrencies provide a natural setting to test for the existence of price bubbles using the local martingale theory of bubbles because cryptocurrencies have no cash flows. Using a robust statistical algorithm, we test for price bubbles in eight cryptocurrencies, Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Ripple (XRP), Bitcoin Cash (BCH), EOS (EOS), Monero (XMR), and Zcash (ZEC), from 1 January 2019 to 17 July 2019. The statistical test first estimates the cryptocurrencies’ volatilities as a function of the price level. Then, these estimates are extrapolated over the positive real line using power functions. Finally, these power functions underly a sequence of hypothesis tests for price bubbles that control for both Type I and Type II errors. Five of the eight currencies (BTC, BCH, EOS, XMR, ZEC) exhibit price bubbles, LTC does not, and the evidence for ETH and XRP is inconclusive. The paper provides strong evidence for the prevalence of bubbles in cryptocurrencies.
Publisher
World Scientific Pub Co Pte Ltd
Subject
General Economics, Econometrics and Finance,Finance
Cited by
4 articles.
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