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Can We Predict the Returns of Crypto-Currencies?

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Robin Lumsden
Robin Lumsden
2019

In this thesis I investigate the extent to which we can predict the market outcomes of cryptocurrencies. I focus on the two currently most prominent cryptocurrencies: Bitcoin and Ethereum. In the first part of the thesis I investigate whether the price levels of Bitcoin and Ethereum satisfy the weak form of the Eicient Market Hypothesis. I find evidence of weak-form eiciency in the market for cryptocurrencies. In the second part of the thesis I ask whether cryptocurrencies are viewed as an hedging vehicle against the mainstream economy. To answer this question I explore the association betweenmarket outcomes for Bitcoin and Ethereum and the Yield Curve. I find limited evidence of an association between the cryptocurrencies market and the Yield Curve. In the third part of the thesis I ask whether the market for cryptocurrencies is driven by noise traders. To answer that I explore the association between market outcomes for cryptocurrencies and qualitative information from Google searches. I find evidence of strong predictability of the price and transaction volume of Bitcoin by indexized Google searches, suggesting that the fashionability and popularity of Bitcoin go hand in hand.

Keywords

cryptocurrencies, Bitcoin, ethereum