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MAX momentum in cryptocurrency markets

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  • Li, Yi
  • Urquhart, Andrew
  • Wang, Pengfei
  • Zhang, Wei

Abstract

This paper studies the MAX effect, the relationship between maximum daily returns and future returns in the cryptocurrency market. The cryptocurrency market is an ideal setting for the MAX effect due to its lottery-like features (i.e., large positive skewness). Contrary to findings in other markets, we demonstrate that cryptocurrencies with higher maximum daily returns tend to achieve higher returns in the future and call this the “MAX momentum” effect. We also find that the magnitude of the MAX momentum effect varies with market conditions, investor sentiment and the underpricing of cryptocurrencies. Additionally, this effect is robust to longer holding periods, different MAX measures and alternative sample selection criteria.

Suggested Citation

  • Li, Yi & Urquhart, Andrew & Wang, Pengfei & Zhang, Wei, 2021. "MAX momentum in cryptocurrency markets," International Review of Financial Analysis, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finana:v:77:y:2021:i:c:s1057521921001630
    DOI: 10.1016/j.irfa.2021.101829
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    4. Milan Fičura, 2023. "Impact of size and volume on cryptocurrency momentum and reversal," FFA Working Papers 5.003, Prague University of Economics and Business, revised 05 Apr 2023.
    5. Liebi, Luca J., 2022. "Is there a value premium in cryptoasset markets?," Economic Modelling, Elsevier, vol. 109(C).
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    8. Wouassom, Alain & Muradoğlu, Yaz Gülnur & Tsitsianis, Nicholas, 2022. "Global momentum: The optimal trading approach," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    9. Almeida, José & Gonçalves, Tiago Cruz, 2023. "A systematic literature review of investor behavior in the cryptocurrency markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
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    11. Leong, Minhao & Kwok, Simon, 2023. "The pricing of jump and diffusive risks in the cross-section of cryptocurrency returns," Journal of Empirical Finance, Elsevier, vol. 74(C).
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