Market Inefficiency in Cryptoasset Markets
🤖 AI Summary
This study investigates whether inefficiencies in cryptocurrency markets exist that cannot be attributed to mispricing of risk. By constructing portfolios that share identical exposures to dominant risk factors but differ in secondary risk exposures, the authors propose a model-free equilibrium restriction test that does not rely on any specific asset pricing model, thereby isolating market frictions unrelated to investor risk preferences. Empirical results strongly reject this equilibrium restriction, revealing sources of inefficiency in crypto markets that impede the effective reallocation of capital. These findings provide novel evidence for understanding the mechanisms underlying market inefficiencies in this emerging asset class.
Application Category
📝 Abstract
We demonstrate market inefficiency in cryptoasset markets. Our approach examines investments that share a dominant risk factor but differ in their exposure to a secondary risk. We derive equilibrium restrictions that must hold regardless of how investors price either risk. Our empirical results strongly reject these necessary equilibrium restrictions. The rejection implies market inefficiency that cannot be attributed to mispriced risk, suggesting the presence of frictions that impede capital reallocation.
Problem
Research questions and friction points this paper is trying to address.
market inefficiency
cryptoasset markets
risk pricing
capital reallocation
market frictions
Innovation
Methods, ideas, or system contributions that make the work stand out.
market inefficiency
cryptoasset markets
equilibrium restrictions
risk factor exposure
capital reallocation frictions
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