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Market efficiency of the bitcoin exchange rate: Weak and semi-strong form tests with the spot, futures and forward foreign exchange rates

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  • Nan, Zheng
  • Kaizoji, Taisei

Abstract

We propose a bitcoin-based exchange rate of USD/EUR and investigate market efficiency in the spot, futures, and forward FX markets. Structural-change, unit-root and Johansen tests indicate that the bitcoin exchange rate is a random walk and is co-integrated with the FX series. Inferences regarding the co-integrating coefficients suggest the long-run “unbiasedness” and short-run “fair game” nature of the bitcoin exchange rate. Our results are indicative of weak or semi-strong market efficiency.

Suggested Citation

  • Nan, Zheng & Kaizoji, Taisei, 2019. "Market efficiency of the bitcoin exchange rate: Weak and semi-strong form tests with the spot, futures and forward foreign exchange rates," International Review of Financial Analysis, Elsevier, vol. 64(C), pages 273-281.
    • Handle: RePEc:eee:finana:v:64:y:2019:i:c:p:273-281
    DOI: 10.1016/j.irfa.2019.06.003
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    Cited by:

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    2. Huang, Guan-Ying & Gau, Yin-Feng & Wu, Zhen-Xing, 2022. "Price discovery in fiat currency and cryptocurrency markets," Finance Research Letters, Elsevier, vol. 47(PA).
    3. Tran, Vu Le & Leirvik, Thomas, 2020. "Efficiency in the markets of crypto-currencies," Finance Research Letters, Elsevier, vol. 35(C).
    4. F. N. M. de Sousa Filho & J. N. Silva & M. A. Bertella & E. Brigatti, 2020. "The leverage effect and other stylized facts displayed by Bitcoin returns," Papers 2004.05870, arXiv.org, revised Jan 2021.
    5. Takeshi Yoshihara & Taisei Kaizoji, 2022. "Mechanism of information transmission from a spot rate market to crypto-asset markets," Papers 2211.16176, arXiv.org.
    6. Ángeles Cebrián-Hernández & Enrique Jiménez-Rodríguez, 2021. "Modeling of the Bitcoin Volatility through Key Financial Environment Variables: An Application of Conditional Correlation MGARCH Models," Mathematics, MDPI, vol. 9(3), pages 1-16, January.
    7. Cheng, Jiameng & Dai, Yanke, 2020. "Is bitcoin a channel of capital inflow? Evidence from carry trade activity," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 261-278.
    8. Qiao, Xingzhi & Zhu, Huiming & Hau, Liya, 2020. "Time-frequency co-movement of cryptocurrency return and volatility: Evidence from wavelet coherence analysis," International Review of Financial Analysis, Elsevier, vol. 71(C).
    9. Mehmet Balcilar & Huseyin Ozdemir, 2023. "On the Risk Spillover from Bitcoin to Altcoins: The Fear of Missing Out and Pump-and-Dump Scheme Effects," JRFM, MDPI, vol. 16(1), pages 1-15, January.
    10. Li, Zhenghui & Mo, Bin & Nie, He, 2023. "Time and frequency dynamic connectedness between cryptocurrencies and financial assets in China," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 46-57.
    11. Vasilios Plakandaras & Elie Bouri & Rangan Gupta, 2019. "Forecasting Bitcoin Returns: Is there a Role for the U.S. – China Trade War?," Working Papers 201980, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Bitcoin; Market efficiency; Bitcoin exchange rate; Co-integration; Johansen procedure;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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