Liquidity and Predictability of Cryptoassets
|Author:||Mgr. Viktória Mjartanová|
|Year:||2021 - winter|
|Leaders:|| prof. PhDr. Ladislav Krištoufek Ph.D.
|Work type:|| Finance, Financial Markets and Banking
|Awards and prizes:|
|Abstract:||The relationship between liquidity and return predictability may be an important aspect to consider when investing in cryptoassets. We examine this
relation using both cross-sectional as well as panel data. First, we calculate a
set of predictability measures and aggregate the results into four variables. We
then regress the predictability variables on a set of controls and two measures
of liquidity, specifically the Amihud illiquidity ratio and the Corwin-Schultz
spread estimate. The other independent variables include the logarithm of
volume, turnover ratio and Garman-Klass volatility. Results from the crosssectional analysis indicate that liquidity negatively impacts the degree of return
predictability. Moreover, findings from a subset of panel data, including only
50 cryptoassets with the largest market capitalization, provide some evidence
in favor of this relationship. Results from full panel data, however, present
contradictory evidence. For these regressions, liquidity is found to be either insignificant or to possess a positive impact on the degree of return predictability.
Altogether, we obtain mixed evidence about the effect of cryptoasset liquidity
on return predictability.