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

Panagiotis Tzouvanas, Renatas Kizys*, Bayasgalan Tsend-Ayush

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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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.

Original languageEnglish
Article number108728
JournalEconomics Letters
Volume191
Early online date30 Sept 2019
DOIs
Publication statusPublished - 11 May 2020

Keywords

  • cryptocurrency
  • dynamic conditional correlation
  • momentum

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