Momentum and Contrarian Effects on the Cryptocurrency Market
In this recently released study, the effects of momentum and contrarian strategies on the cryptocurrency market were investigated and analysed. The momentum and contrarian strategies were executed on the top 100 cryptocurrencies with the largest market cap and average 14 day daily volume. Both of these strategies were compared with a buy and hold strategy on Bitcoin over the same period of time as well as a buy and hold strategy on the S&P 500.
The measurements used to evaluate the performance of the strategies included the annualised rate of change (ARC), annaulised standard deviation of daily returns (ASD), and the maximum drawdown coefficient (MDD). Two sets of information ratio coefficients were used to quantify the risk weighted gain as well (IR1 and IR2).
The outcome of the study revealed that investment strategies using momentum and contrarian effects realise abnormal risk-weighted rates of return relative to the benchmark strategies. It is noted that the irrational returns can be credited to the fact that the cryptocurrency market is still young and unstable and there is little regulation which keeps institutional investors from entering the markets. The research also covers how “altcoins” performed in this study as well as how each of the measurements were calculated and much more.
Read the full study by Krzysztof Kosc, Pawel Sakowski and Robert Slepaczuk here.
The research illustrates the results of all the strategies compared to one another. Below is an example of the contrarian strategy as compared to the two benchmark strategies and the momentum strategy from the paper.
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