{"title":"APPLYING THE LOCAL MARTINGALE THEORY OF BUBBLES TO CRYPTOCURRENCIES","authors":"SOON HYEOK CHOI, R. Jarrow","doi":"10.1142/s0219024922500133","DOIUrl":null,"url":null,"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.","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5000,"publicationDate":"2022-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"2","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Journal of Theoretical and Applied Finance","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1142/s0219024922500133","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 2
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.
期刊介绍：
The shift of the financial market towards the general use of advanced mathematical methods has led to the introduction of state-of-the-art quantitative tools into the world of finance. The International Journal of Theoretical and Applied Finance (IJTAF) brings together international experts involved in the mathematical modelling of financial instruments as well as the application of these models to global financial markets. The development of complex financial products has led to new challenges to the regulatory bodies. Financial instruments that have been designed to serve the needs of the mature capitals market need to be adapted for application in the emerging markets.
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