This paper proposes a new investment strategy in the cryptocurrency market based on a two-step procedure. The first step is the computation of the asset's levels of efficiency in a universe of cryptocurrencies. Price returns' efficiency degrees are measured by their corresponding levels of multifractality, obtained by the multifractal detrended fluctuation analysis method. The higher the multifractality, the higher the inefficiency in terms of the weak-form of market efficiency. Cryptocurrencies are then ranked in terms of efficiency. The second step is the construction of portfolios under the Markowitz framework composed of the most efficient digital coins. Minimum variance, maximum Sharpe ratio, equally weighted, and efficient-based portfolios were considered. The former strategy is also proposed, where the weights are computed proportionally to the asset's levels of efficiency. The main findings are that cryptocurrency price returns are multifractal, and their levels of efficiency change over time. In periods of high volatility and high price depreciation (bear market), a better performance is associated with portfolios composed of the most efficient cryptocurrencies.
Comissão Organizadora
Anderson Odias da Silva
Claudia Yoshinaga
Ricardo D. Brito
Felipe Saraiva Iachan
Vinicius Augusto Brunassi Silva
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