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Informational Efficiency of Cryptocurrency Markets

Published online by Cambridge University Press:  17 April 2024

Mahendrarajah Nimalendran Open the ORCID record for Mahendrarajah Nimalendran [Opens in a new window] ,
Praveen Pathak ,
Mariia Petryk Open the ORCID record for Mariia Petryk [Opens in a new window]  and
Liangfei Qiu Open the ORCID record for Liangfei Qiu [Opens in a new window]
Mahendrarajah Nimalendran
Affiliation:
University of Florida Warrington College of Business [email protected]
Praveen Pathak
Affiliation:
University of Florida Warrington College of Business [email protected]
Mariia Petryk*
Affiliation:
George Mason University Donald G. Costello College of Business
Liangfei Qiu
Affiliation:
University of Florida Warrington College of Business [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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This study employs variance ratios (VRs) to assess the roles of regulation and liquidity on cryptocurrency market efficiency, focusing on crypto-assets subject to varying degrees of regulation. Our findings reveal that cryptocurrencies supervised by FinCEN-licensed exchanges (IEO-L) exhibit market efficiency similar to SEC-regulated traditional stock offerings (IPOs). Conversely, noncompliant crypto-assets display higher market inefficiency. We also establish a connection between regulatory compliance and issuing entity reputation mechanisms. Our results indicate that compliance with existing regulatory norms enhances efficiency and reduces investor risks in crypto-assets. Furthermore, assets voluntarily adhering to regulatory norms can attain efficiency akin to government-regulated assets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 30
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Hendrik Bessembinder (the editor) and an anonymous referee for helpful suggestions. The authors are listed in alphabetical order.

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