The dynamics of market efficiency: An empirical study on the crypto currencies

The Efficient Market Hypothesis (EMH) has been studied by researchers in many studies in the literature. However, there is no consensus among researchers on whether the markets are efficient or not. In recent years, alternative market hypotheses to EMH have been presented on the efficiency of markets. Adaptive Market Hypothesis (AMH), which is an alternative market hypothesis to EMH, asserts that market efficiency shifts between efficiency and inefficiency depending on different market conditions. In other words, AMH asserts that financial markets have a dynamic structure. In this study, AMH, an alternative hypothesis to EMH, was tested in the cryptocurrency market from 2017 to 2021 periods. Bitcoin, Ethereum, Litecoin, Ripple, Cardano have been used to investigate the time-varying nature (dynamic nature) of cryptocurrency market efficiency. The predictability of cryptocurrency returns was measured using the Automatic Portmanteau developed by Escanciano and Lobato (2009) and Wild Bootstrap Automatic Variance Ratio tests developed by Kim (2009). Besides, daily returns of cryptocurrencies were analyzed using the 500-days rolling window approach to capture the time-varying nature of the cryptocurrency market efficiency. According to the analysis results, it was understood that the cryptocurreny market efficiency has varied over time and this situation is in line with AMH.