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Full Length Article

Testing the random walk hypothesis for leading cryptocurrencies

Srinivasan Palamalai*, K. Krishna Kumar, Bipasha Maity
School of Management, Presidency University, Itgalpur, Rajanakunte, Yelahanka, Bengaluru 560064, Karnataka, India
Received 14 March 2020; revised 16 October 2020; accepted 16 October 2020
Available online ▪ ▪ ▪

Abstract

Despite the rise in markets for cryptocurrencies at an outstanding pace, with consistently high trading volume and market capitalization, the
increasing volatility of the virtual currencies raise various concerns. One of the major concerns is regarding (in)efficiency, viz. whether there
exist opportunities of making excess returns based on out-performing the market or merely a game of chance. In this study, the authors
investigate the weak-form efficiency of the top-ten cryptocurrencies using non-parametric and parametric random walk testing methods that are
robust to unknown structural breaks and asymmetric effects. The findings do not support the random walk hypothesis, hence validating the weak-
form inefficiency for daily cryptocurrencies returns. This can be attributed to the presence of asymmetric volatility clusters. This study has
significant implications for portfolio managers, market participants and regulators of leading cryptocurrency markets.
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JEL classification: C32; C5; G14

Keywords: Cryptocurrency; Random walk hypothesis; Asymmetric effect; Volatility clustering; GARCH-Type models

1. Introduction Investors, regulators and market practitioners are utmost

Cryptocurrencies have received significant attention from
various market participants, financial and government in-
stitutions and venture capitalists. Crypto markets have the
potential to protect the trust and interest of the investors
through the immutable characteristics of the underlying
blockchain technology. Nevertheless, the cryptocurrencies are
often viewed as speculative product rather than a currency and
speculators attempts to make profit without being conscious of
its volatility features and market efficiency (Aggarwal, 2019;
Baek & Elbeck, 2015). The exponential rise in speculation
activities make cryptocurrency markets more susceptible to
volatile price swings and deteriorates the efficiency of the
relevant portfolio diversification strategies (Katsiampa, 2017).
* Corresponding author.
E-mail addresses: srinivasaneco@gmail.com (S.
krishnakumark@presidencyuniversity.in (K.K. Kumar),
presidencyuniversity.in (B. Maity).
_
Peer review under responsibility of Borsa Istanbul Anonim Şirketi.
concerned about the volatile price movements of crypto-
currencies. It still remains vague that whether the widest price
swings of cryptocurrencies behave randomly over a time
period or predictable. Ultimately, it depends on the ability of
market participants in estimating the real value of crypto-
currency. This can be long-established by the theory of Effi-
cient Market Hypothesis (EMH) put forward by the seminal
work of Fama (1970) in traditional finance.
According to Fama (1970), the markets are said to be fully
efficient and follow a random walk model (weak-form effi-
cient) where the future returns cannot be estimated using
historical information. In other words, investors cannot obtain
abnormal returns using historical information and the return
series adheres to martingale or random walk. The current asset
prices are anticipated to reflect the entire data from past
market and no momentum trading will generate abnormal
returns from such dataset. Efficiency and volatility are inex-
Palamalai), tricable since efficiency is related to market returns while
bipasha@
volatility is associated with variation from such returns and
persistence. This drew the attention of various researchers and

https://doi.org/10.1016/j.bir.2020.10.006
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license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
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Please cite this article as: S. Palamalai, K.K. Kumar and B. Maity, Testing the random walk hypothesis for leading cryptocurrencies, Borsa Istanbul Review,
https://doi.org/10.1016/j.bir.2020.10.006

S. Palamalai, K.K. Kumar and B. Maity
stakeholders to investigate the performance of cryptocurren-
cies. Among the stakeholders, investors were largely looking
for outcomes. Investigating efficiency and volatility persis-
tence in cryptocurrency markets received considerable atten-
tion among the investors who actively traded since the
cryptocurrency market is young. An enormous amount of
research has been undertaken on empirical testing of market
efficiency with focus on Bitcoin (Urquhart, 2016; Nadarajah &
Chu, 2017; Tiwari et al., 2018; Al-Yahyaee et al., 2018; Cheah
et al., 2018; Jiang et al., 2018; Kristofek, 2018; Sensoy, 2019).
Research on efficiency in other emerging crypto markets are
found to be meager and unexplored, offering significant op-
portunity to academicians and market participants.
Table 1 shows the market characteristics of leading cryp-
tocurrencies. Bitcoin remains the dominant cryptocurrency in
terms of market capitalization and traded volume, followed by
the Ethereum. All other cryptocurrencies have rather low
transaction volumes in comparison, except Litecoin and Rip-
ple. This could be due to the fact that the supply of different
coins varies substantially in terms of their unique character-
istics and the purpose for which it is considered (Ong et al.,
2015). Although, Bitcoin dominates the market with more
than half of the total market value with the highest price, the
altcoins including Ethereum (ETH), Ripple (XRP), Litecoin
(LTC), Stellar (XLM), Monero (XMR), Dash (DASH),
Ethereum Classic (ETC), NEM (XEM) and Maker (MKR)
could challenge in the future with a wide assortment of fea-
tures for investors to invest in (Lee et al., 2018). Therefore,
this research work is undertaken by considering top ten major
cryptocurrencies and applying non-parametric and parametric
testing approaches to investigate their random-walk behaviour.
This will assist the market participants to comprehend the
overall price dynamics of the cryptocurrency markets rather
than focus on a single digital currency. This is an important
area of research which requires further work especially with
respect to understanding the pricing behaviour of an applica-
tion of blockchain technology. Moreover, the study primarily
shed light on the informational efficiency and predictable
patterns of crypto market prices which could be of immense
help to investors to devise effective trading strategies. Prior
Table 1
Major characteristics of top ten cryptocurrencies as of August 5, 2019.
Name of the Cryptocurrency Symbol
Bitcoin BTC
Ethereum ETH
Ripple XRP
Litecoin LTC
Stellar XLM
Monero XMR
Dash DASH
Ethereum Classic ETC
NEM XEM
Maker MKR
Source: https://coinmarketcap.com/currencies/.
Note: The coinmarketcap.com website compute prices by taking the volume weighted average of values reported for different exchange markets. Traded Volume
represents total amount of coins traded in the last 24 h.
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studies on random walk model applied time-varying volatility
procedures that do not account for structural breaks. However,
failing to discern the structural shifts in the conditional mean
and variance may suffer from either systematic underestima-
tion or overestimation of volatility of the underlying assets.
Therefore, the present study attempts to evaluate the efficiency
of leading cryptocurrencies through time-varying volatility
model that sufficiently captures the structural breaks.
2. Literature review
Urquhart (2016) made a first attempt to study the infor-
mational efficiency of Bitcoin using Ljung-Box test, Runs test,
Bartel test, variance ratio, wild-bootstrapped automatic vari-
ance ratio (AVR) test, BDS (Brock-Dechert-Scheinkman) test
and Hurst exponent test. Their research results exhibited that
Bitcoin market is inefficient. Nadarajah and Chu (2017)
developed the research of Urquhart (2016) with spectrum of
statistical analysis and concluded that Bitcoin returns do not
satisfy the efficient market hypothesis but the transformed
Bitcoin prices are efficient. By applying standard ordinary
least squares (OLS) and robust least squares (RLS) methods,
Kurihara and Fukushima (2017) indicated that Bitcoin market
is not efficient though will behave more randomly over time.
Latif et al. (2017) examined the efficiency of Bitcoin and
Litecoin time series data by employing heteroskedasticity test,
serial correlation test, Bai and Perron (2003) break points test
and GARCH (1,1) model with structural breaks. They pro-
vided evidence against weak-form market efficiency. Tiwari
et al. (2018) employed a battery of computationally efficient
long-range dependence estimators to investigate the informa-
tional efficiency of Bitcoin and the outcomes are consistent
with the findings of Urquhart (2016) and Nadarajah and Chu
(2017). In this line, Jiang et al. (2018) studied the time-
varying long term memory in Bitcoin market through Hurst
exponent measure, Ljung-Box test, AVR test, rolling window
approach and new Efficiency index. They supported for mar-
ket inefficiency. Furthermore, Alaoui et al. (2018) applied
multifractal detrended cross-correlation analysis (MF-DCCA)
and reported the lack of efficiency in the Bitcoin market. In
Market Capitalization ($) Price ($) Traded Volume (24 h) ($)
210,848,822,060 11805.65 23,875,988,832
25,108,076,876 234.22 7,765,060,287
13,872,050,658 0.323564 1,203,381,139
6,098,470,159 96.83 4,134,352,823
1,620,790,147 0.082619 102,754,847
1,605,113,036 93.65 116,283,579
997,065,751 111.21 170,830,744
696,191,285 6.19 516,749,115
583,068,049 0.064785 34,138,801
514,426,972 593.03 1,544,082
2
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S. Palamalai, K.K. Kumar and B. Maity
addition, Aharon and Qadan (2019) found similar results for
the Bitcoin market by employing OLS and GARCH model.
Caporale et al. (2018) examined the persistence of four
cryptocurrency markets and found evidence of market in-
efficiency since these markets exhibit persistence. Zhang et al.
(2018) examined for nine cryptocurrencies and applied a
battery of efficiency tests, viz. GARCH and GJR-GARCH
specifications and Detrended Moving Average cross-
correlation analysis to discover the stylized facts about digi-
tal currencies. The empirical results indicated that various
cryptocurrencies and their performances are inefficient in the
markets. Using fractionally integrated GARCH (FIGARCH)
model, Lahmiri et al. (2018) found the evidences of weak-
form inefficiency for seven cryptocurrencies. More recently,
Charfeddine and Maouchi (2019) employed daily closing
prices of Bitcoin, Ethereum, Ripple and Litecoin and reported
that Ethereum is the only efficient market. Aggarwal (2019)
observed inefficiency in the Bitcoin market by employing
serial correlation coefficient test, unit root tests and GARCH-
type models. Furthermore, Hu et al. (2019) examined the
efficient market hypothesis for thirty-one top market-cap
cryptocurrencies and found no evidences of market efficiency.
On the contrary, the pivotal works on efficiency of cryp-
tocurrency market supported the efficient market hypothesis.
Vidal-Tomas and Iba~ nez (2018) applied Autoregressive
Copula Generalized Autoregressive Conditional Hetero-
scedasticity (AR-CGARCH) models and found that Bitcoin
has become efficient over time in response to its own news.
Using a dynamic approach based on the Hurst exponent and
detrended fluctuation analysis (DFA), Bariviera (2017) found
that Bitcoin market is efficient since 2014. Moreover, Sensoy
(2018) used intraday data on Bitcoin prices in terms of USD
and EUR to test the weak-form efficiency. They applied per-
mutation entropy method, suggested by Matilla-García and
Marín (2008) and a spatial dependence measure, suggested
by Lopez et al. (2010) and found that both markets have
become more efficient since 2016. Recently, Wildi & Bundi,
2019 showed that the Bitcoin market would be more effi-
cient for future sample periods. For a sample of 143 crypto-
currencies, Grobys and Sapkota (2019) supported the view that
the cryptocurrency markets are efficient to a greater extent
than advocated in previous studies.
3. Data & methodology
3.1. Data
A research study based on the works of Katsiampa (2019)
and Palamalai and Maity (2019), the top ten most highly
capitalized cryptocurrencies have been actively traded for
more than 2 years as on August 5, 2019. According to their
research findings, the dataset is confined to cryptocurrencies
with a market capitalization in excess of five hundred million
dollars. The cryptocurrencies that met these criteria are Bit-
coin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC),
Stellar (XLM), Monero (XMR), Dash (DASH), Ethereum
Classic (ETC), NEM (XEM) and Maker (MKR). The daily
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closing prices of these cryptocurrencies are publicly available
online at https://coinmarketcap.com/coins/and the prices are
listed in US Dollars. The website provides results based on the
computation of prices by taking the volume weighted average
of values corresponding to various exchange markets. The
daily price returns of each of the ten cryptocurrencies are
computed as compounded returns.
Rt ¼ ln(Pt) e ln(Pt-1) (1)
where ln (Pt) is the natural logarithm of the closing price of
cryptocurrency on day t and ln (Pt-1) is the natural logarithm of
the closing price of cryptocurrency on day t-1.
Moreover, the entire study period is divided into two sub-
periods (first subsample period and second subsample
period) after the QuandteAndrews unknown and Chow
breakpoint tests for the cryptocurrencies. The timeframe of
entire sample and subsamples of respective cryptocurrencies
are reported in Appendix 1. The methodology employed in
this study is the combination of non-parametric tests (Runs
test, Kolmogorov-Smirnov test) and parametric tests (unit root
tests, multiple variance ratio test and GARCH-type models) to
examine the random walks hypothesis (See the Supplementary
Material for further details, available online).
4. Empirical results
4.1. Descriptive statistics
The descriptive statistics for daily return series of the ten
selected cryptocurrencies are reported in Table 2. Average
returns are found to be positive for all the cryptocurrencies
ranging from 0.11% (ETC) to 0.47% (MKR). All return series
exhibits high volatility, with standard deviation ranges from
BTC (6.68%) to XMR (14.52%). All return series are posi-
tively skewed except ETH. This implies that large positive
price returns are more observed than large negative returns.
Most importantly, there exists significant difference between
the skewness values of Bitcoin and Ethereum. The positive
skewness value of BTC indicate that market is more volatile
and reacts more towards the good news than the bad news.
While, negative value of ETH indicates relatively large
negative shocks in the returns than the positive ones. The
positive and negative skewness signs of BTC and ETH would
indicate that BTC can hedge against the price movements of
the ETH1. All kurtosis values are extremely high which clearly
indicates a leptokurtic distribution. The Jarque-Bera statistics
are found to be statistically significant at 1% level, rejecting
the null hypothesis of normal distribution. In addition, the
QeQ plots are constructed and shown in Fig. S1 (See the
1
Refer Bouoiyour and Selmi (2017) for detailed information on safe haven,
hedge and risk diversifier properties of Bitcoin and Ethereum. Using various
techniques, viz. GARCH model, the generalized sup ADF test procedure and
Copula-based joint tail modeling, the authors compared the Bitcoin and
Ethereum across their volatile attitudes, their speculative behaviours, and the
hedging and safe haven properties.
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Table 2
Descriptive statistics of daily cryptocurrency returns.
Parameters BTC ETH XRP LTC XLM XMR DASH ETC XEM MKR
Mean 0.0037 0.0029 0.0017 0.0015 0.0037 0.0034 0.0028 0.0011 0.0034 0.0047
Maximum 1.4743 0.3822 1.0279 0.8903 0.6741 1.1500 2.2238 0.5329 0.9955 2.4761
Minimum 0.8487 0.9162 0.9972 0.9345 0.3915 1.3428 2.3108 0.3622 0.3614 0.3462
Std. Dev. 0.0668 0.0735 0.1048 0.0751 0.0927 0.1452 0.1293 0.0680 0.0838 0.1171
Skewness 2.9355 1.1238 0.8520 0.6472 1.3339 0.0316 1.2447 0.5385 1.9020 14.654
Kurtosis 96.469 22.321 27.529 37.052 13.002 30.591 162.24 9.9642 20.509 309.01
Jarque-Bera 1209667* 23064.4* 41844.1* 102332.3* 4170.98* 52435.7* 2127621* 2292.67* 21296.3* 2539779*
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Source: Author's estimates.
Note: * indicate statistical significance at 1% level. The Jarque-Bera statistic tests the null hypothesis of a normal distribution.

Table 3
Runs test for the daily cryptocurrency returns.
Cryptocurrency Cases < Mean Cases > Mean Actual Runs (R) Expected Runs (m) Z-statistics Prob. value
BTC 1776 1534 1616 1647.15 1.089 0.276
ETH 794 669 765 727.15 1.994 0.046
XRP 945 715 944 814.57 6.419 0.000
LTC 1152 963 1139 1050.05 3.900 0.000
XLM 506 428 485 464.74 1.336 0.182
XMR 920 733 895 816.92 3.892 0.000
DASH 1163 850 1018 983.16 1.592 0.111
ETC 596 512 598 551.81 2.792 0.005
XEM 862 730 837 791.52 2.296 0.022
MKR 353 292 324 320.61 0.269 0.788
Source: Author's estimates.
Note: Runs test is used to determine the randomness of the return series. Z test statistics test the null hypothesis of randomness of the return series. The critical
values for the Z-statistics are ±1.96 and ± 2.576 at the 5% and 1% level of significance, respectively.

Table 4
Kolmogorov-Smirnov Test for the daily cryptocurrency returns.
Cryptocurrency Absolute Positive Negative Kolmogorov-Smirnov (KeS) Z statistics Prob. value
BTC 0.167 0.154 0.167 9.601 0.000
ETH 0.102 0.100 0.102 3.900 0.000
XRP 0.172 0.172 0.147 7.028 0.000
LTC 0.163 0.163 0.138 7.510 0.000
XLM 0.108 0.108 0.087 3.309 0.000
XMR 0.184 0.177 0.184 7.485 0.000
DASH 0.221 0.221 0.219 9.931 0.000
ETC 0.093 0.093 0.090 3.104 0.000
XEM 0.109 0.109 0.081 4.363 0.000
MKR 0.198 0.198 0.172 5.033 0.000
Source: Author's estimates.
Note: One sample Kolmogorov-Smirnov test is used to determine how well a random sample of data fits particular hypothesized distribution. KeS Z test statistics
test the null hypothesis that the return series is normally distributed (random walk).

Supplementary Material, available online) to examine the
assumption of random walk model, i.e. whether the return
series follow the normal distribution. The QeQ plots are
found to be S-shaped, indicating that the return series do not
follow the normal distribution.
4.2. Non parametric tests
4.2.1. Runs test
In order to investigate the randomness of daily return series
of emerging cryptocurrencies, the authors have applied non-
parametric tests, viz. Runs test and Kolmogorov-Smirnov
test and the results are depicted in Table 3 and Table 4,
respectively. Empirical evidence from the Runs test reveals
that the null hypothesis of return series being a random series
is rejected at the 1% and 5% significance levels for all cryp-
tocurrency returns, except for the BTC, XLM, DASH and
MKR.
4.2.2. Kolmogorov-Smirnov (KeS) test
Similar results are obtained by Kolmogorov-Smirnov
(KeS) test that examine the null of randomness of return se-
ries. In Table 4, the KeS test statistics are found to be sta-
tistically significant at 1% level, confirming the evidence

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Table 5
Breakpoint unit root tests.
Cryptocurrency Break type-Innovative outlier
Model
Trend Specification Intercept Trend & Intercept
Break Specification Intercept Intercept Trend & Intercept Trend
BTC Break Date 7/22/2010 7/22/2010 8/09/2010 8/17/2010
ADF test statistics 56.866* 56.913* 56.760* 56.755*
P-value <0.01 <0.01 <0.01 <0.01
ETH Break Date 2/11/2016 2/11/2016 2/11/2016 1/21/2016
ADF test statistics 43.248* 43.276* 43.528* 42.745*
P-value <0.01 <0.01 <0.01 <0.01
XRP Break Date 2/16/2015 2/16/2015 2/16/2015 1/27/2015
ADF test statistics 57.943* 57.927* 57.918* 57.842*
P-value <0.01 <0.01 <0.01 <0.01
LTC Break Date 4/22/2014 4/22/2014 11/26/2013 4/16/2014
ADF test statistics 52.989* 52.978* 52.473* 51.186*
P-value <0.01 <0.01 <0.01 <0.01
XLM Break Date 5/06/2017 5/06/2017 5/07/2017 4/02/2017
ADF test statistics 30.693* 30.727* 31.046* 29.246*
P-value <0.01 <0.01 <0.01 <0.01
XMR Break Date 2/19/2015 2/19/2015 2/19/2015 2/21/2015
ADF test statistics 59.121* 59.125* 59.404* 58.073*
P-value <0.01 <0.01 <0.01 <0.01
DASH Break Date 2/17/2014 2/17/2014 2/17/2014 2/17/2014
ADF test statistics 65.197* 65.222* 65.222* 66.195*
P-value <0.01 <0.01 <0.01 <0.01
ETC Break Date 5/24/2017 5/24/2017 5/24/2017 3/20/2017
ADF test statistics 36.798* 36.783* 37.076* 35.126*
P-value <0.01 <0.01 <0.01 <0.01
XEM Break Date 4/14/2015 4/14/2015 4/13/2015 4/27/2015
ADF test statistics 43.294* 43.362* 43.348* 43.310*
P-value <0.01 <0.01 <0.01 <0.01
MKR Break Date 8/29/2017 : 8/29/2017 8/29/2017 9/01/2017
ADF test statistics 34.498* 34.500* 31.740* 31.988*
P-value <0.01 <0.01 <0.01 <0.01
Break type-Additive outlier
BTC Break Date 7/22/2010 7/22/2010 8/09/2010 7/23/2010
ADF test statistics 56.795* 56.850* 56.704* 23.232*
P-value <0.01 <0.01 <0.01 <0.01
ETH Break Date 2/11/2016 2/11/2016 2/11/2016 1/23/2016
ADF test statistics 43.267* 43.310* 43.528* 42.744*
P-value <0.01 <0.01 <0.01 <0.01
XRP Break Date 12/14/2017 12/14/2017 12/14/2017 5/01/2017
ADF test statistics 59.138* 59.270* 59.294* 30.448*
P-value <0.01 <0.01 <0.01 <0.01
LTC Break Date 11/19/2013 11/19/2013 12/07/2013 4/22/2014
ADF test statistics 52.142* 52.153* 52.263* 51.214*
P-value <0.01 <0.01 <0.01 <0.01
XLM Break Date 5/07/2017 5/07/2017 : 5/07/2017 4/02/2017
ADF test statistics 30.647* 30.664* 31.138* 29.293*
P-value <0.01 <0.01 <0.01 <0.01
XMR Break Date 2/19/2015 2/19/2015 2/19/2015 8/20/2016
ADF test statistics 59.156* 59.176* 59.471* 10.738*
P-value <0.01 <0.01 <0.01 <0.01
DASH Break Date 2/17/2014 2/17/2014 2/17/2014 5/20/2019
ADF test statistics 65.231* 65.269* 66.164* 12.958*
P-value <0.01 <0.01 <0.01 <0.01
ETC Break Date 5/24/2017 5/24/2017 5/24/2017 3/21/2017
ADF test statistics 36.831* 36.829* 37.140* 35.173*
P-value <0.01 <0.01 <0.01 <0.01
XEM Break Date 5/18/2017 5/18/2017 5/18/2017 1/17/2016
ADF test statistics 44.120* 44.169* 44.310* 31.990*
P-value <0.01 <0.01 <0.01 <0.01
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Table 5 (continued )
Cryptocurrency Break type-Innovative outlier
Model
Trend Specification Intercept Trend & Intercept
Break Specification Intercept Intercept Trend & Intercept Trend
MKR Break Date 8/27/2017 8/27/2017 8/27/2017 9/01/2017
ADF test statistics 45.584* 45.326* 45.327* 31.330*
P-value <0.01 <0.01 <0.01 <0.01
Source: Author's estimates.
Note: * indicate statistical significance at 1% level. The lag length was chosen on the basis of the Schwarz Information Criterion. The breakpoint selection method
was based on the Dickey Fuller minimization of t-statistic.

against the random-walk hypothesis for all the leading cryp- values were less than 5% in the case of all crypto returns
tomarket returns2. except MKR.

4.3. Parametric test

Table 6
4.3.1. Unit root tests Multiple variance ratio test for the daily cryptocurrency returns.
The random walk hypothesis requires that the return series
Cryptocurrency Lags (q) VR(q) Zq Prob. value
contains a unit root (random-walk behaviour), i.e. non-
BTC 2 0.5978 3.8228 0.0001
stationarity of the series. Unit root tests with and without
4 0.2280 4.4258 0.0000
breaks were applied to examine the stationarity of the return 8 0.1250 3.5762 0.0003
series. Table S1 (See the Supplementary Material, available 16 0.0638 3.0200 0.0025
online) depicts the estimates obtained from ADF, PP and ETH 2 0.4685 11.989 0.0000
KPSS unit root tests without break. The results of these test 4 0.2511 9.5003 0.0000
8 0.1164 7.5036 0.0000
statistics indicates that the null hypothesis of return series
16 0.0571 5.7695 0.0000
containing a unit root was rejected at 1% level of significance. XRP 2 0.3001 5.8720 0.0000
All the three tests confirmed that the daily returns series of 4 0.1682 4.1383 0.0000
cryptocurrencies are stationary i.e. do not contain unit roots. 8 0.0875 3.3003 0.0010
However, Perron (1989) emphasized that the conventional unit 16 0.0438 2.7776 0.0055
LTC 2 0.4648 4.9342 0.0000
root tests such as ADF, PP and KPSS tests could lead to
4 0.2179 4.5572 0.0000
misleading inferences if potential structural breaks are 8 0.1145 4.1323 0.0000
ignored, therefore, the study employed the ADF unit root test 16 0.0579 3.7259 0.0002
with two types of breakpoints. The breakpoints are additive XLM 2 0.5050 8.1300 0.0000
outliers which captures a sudden change in the return series 4 0.2713 6.9719 0.0000
8 0.1343 5.7431 0.0000
and innovative outliers that allow for a gradual shift in the
16 0.0617 4.5863 0.0000
mean of the return series. The results of break point unit root XMR 2 0.3829 5.3803 0.0000
tests are shown in Table 5. It is clearly evident from the 4 0.1874 4.0756 0.0000
innovational and additive outlier variants of the breakpoint 8 0.0964 3.0572 0.0022
unit root tests that the null hypothesis of return series con- 16 0.0517 2.3549 0.0185
DASH 2 0.3792 2.8635 0.0042
taining a unit root were rejected at the 1% level of
4 0.1956 2.3854 0.0171
significance. 8 0.0954 2.2090 0.0272
16 0.0531 2.0695 0.0385
4.3.2. Multiple variance ratio test ETC 2 0.4921 9.3449 0.0000
Moreover, the random walk behaviour of daily return series 4 0.2452 8.2886 0.0000
8 0.1222 6.8818 0.0000
of ten cryptocurrencies are examined using variance ratio test
16 0.0610 5.4774 0.0000
with 2, 4, 8 and 16 lags and the results are depicted in Table 6. XEM 2 0.4992 6.6011 0.0000
The null hypothesis of homoscedasticity (random walk) was 4 0.2304 6.3373 0.0000
rejected against alternative of heteroscedasticity as the p 8 0.1172 5.6349 0.0000
16 0.0551 4.9037 0.0000
MKR 2 0.4788 1.4885 0.1366
4 0.1641 1.5876 0.1124
2
It is observed that the KS test statistics are perhaps slightly redundant 8 0.0876 1.4796 0.1390
given the results from the skewness and kurtosis parameters. This could be due 16 0.0378 1.4449 0.1485
to poor power properties of KS test over a wide range of asymmetric distri- Source: Author's estimates.
butions (Yap & Sim, 2011). However, the findings from both descriptive sta- Note: The approximate p-value is obtained using the studentized maximum
tistics and KS test show the evidence against the rejection of random walk modulus with infinite degrees of freedom for the strong rejection of null of a
hypothesis. random walk.

6
 + MODEL

S. Palamalai, K.K. Kumar and B. Maity _

Borsa Istanbul Review xxx (xxxx) xxx

Table 7 Table 8
ARCH effect statistics for the daily cryptocurrency returns. Multiple breakpoints test.
Cryptocurrency Heteroscedasticity test: ARCH-LM Cryptocurrencies Break F-statistic Scaled Critical Break dates
F-statistic Prob. value Test F-statistic values

BTC 7.051394 0.0080 Conditional mean

ETH 93.01935 0.0000 BTC 0 vs. 1* 11.675 23.351 11.47 2/26/2014
XRP 114.9245 0.0000 1 vs. 2 4.1034 8.2069 12.95
LTC 428.6064 0.0000 ETH 0 vs. 1* 53.342 106.68 11.47 10/12/2015;
XLM 185.4264 0.0000 1 vs. 2* 9.6121 19.224 12.95 4/23/2017
XMR 177.5593 0.0000 2 vs. 3 4.4357 8.8714 14.03
DASH 393.0328 0.0000 XRP 0 vs. 1* 53.342 106.68 11.47 10/12/2015;
ETC 29.39656 0.0000 1 vs. 2* 9.6121 19.224 12.95 4/23/2017
XEM 29.37591 0.0000 2 vs. 3 4.4357 8.8714 14.03
MKR 10.00420 0.0000 LTC 0 vs. 1* 10.464 20.929 11.47 9/11/2014
Source: Author's estimates. 1 vs. 2 2.6384 5.2768 12.95
Note: ARCH-Lagrange multiplier (LM) test examine the presence of ARCH XLM 0 vs. 1* 8.9818 17.963 11.47 1/04/2018
effects in the mean of the daily returns under the null of no ARCH effects. 1 vs. 2 1.4997 2.9995 12.95
XMR 0 vs. 1* 18.685 37.371 11.47 2/18/2016
1 vs. 2 2.0061 4.0122 12.95
4.3.3. ARCH-LM test DASH 0 vs. 1* 39.860 79.720 11.47 1/28/2015;
1 vs. 2* 31.118 62.237 12.95 11/27/2015
The ARCH-LM test on random walk model for the daily 2 vs. 3 1.2258 2.4516 14.03
cryptocurrency returns was performed and its results are pro- ETC 0 vs. 1* 7.4103 14.820 11.47 5/25/2017
vided in Table 7. The null of absence of ARCH effects was 1 vs. 2 2.9977 5.9955 12.95
strongly rejected for all return series at 1% level of signifi- XEM 0 vs. 1* 8.2343 16.468 11.47 12/17/2015;
cance. Similarly, the time-series plot of daily cryptocurrencies 1 vs. 2* 12.706 25.413 12.95 6/06/2017
2 vs. 3 4.1258 8.2517 14.03
return in Fig. S2 (See the Supplementary Material, available MKR 0 vs. 1 5.0879 10.175 11.47 e
online) clearly reveals that there are periods of low volatility Conditional variance
followed by periods of high volatility (some tranquil periods BTC 0 vs. 1* 360.77 721.54 11.47 10/20/2012;
as well as turbulent ones) which suggests volatility clustering 1 vs. 2* 94.268 188.53 12.95 2/28/2014
and confirm the presence of ARCH effect. 2 vs. 3 0.4336 0.8672 14.03
ETH 0 vs. 1* 11.999 23.999 11.47 3/23/2016
1 vs. 2 5.2599 10.519 12.95
4.3.4. GARCH-type models XRP 0 vs. 1* 53.342 106.68 11.47 10/12/2015;
For robust examination of the random walk model, the 1 vs. 2* 9.6121 19.224 12.95 4/23/2017
GARCH-type models, viz. GARCH, TARCH, EGARCH and 2 vs. 3 4.4357 8.8714 14.03
PARCH models were performed on the daily returns of LTC 0 vs. 1 4.8995 9.7990 11.47 e
XLM 0 vs. 1 5.6505 11.301 11.47 e
cryptocurrencies. The presence of ARCH effects in the daily XMR 0 vs. 1 4.0538 8.1077 11.47 e
return series validate the application of GARCH family DASH 0 vs. 1* 132.59 265.18 11.47 1/30/2015
models to capture the time-varying volatility. However, the 1 vs. 2 0.7498 1.4996 12.95
conventional symmetric and asymmetric GARCH models are ETC 0 vs. 1* 20.834 41.668 11.47 5/26/2017;
incapable of capturing time varying volatility, if they fail to 1 vs. 2* 7.1131 14.226 12.95 3/21/2018
2 vs. 3 0.2432 0.4864 14.03
consider breaks in the crypto market returns that are caused by XEM 0 vs. 1* 10.354 20.709 11.47 3/09/2016
economic, political and financial events (Lamoureux & 1 vs. 2 4.1887 8.3775 12.95
Lastrapes, 1990; Ndako, 2012). Therefore, authors have MKR 0 vs. 1 1.2399 2.479933 11.47 e
identified the multiple break points in mean of the return and Source: Author's estimates.
conditional variance series of the cryptocurrencies using Bai Note: * indicate statistical significance at 5% level. The critical values are
and Perron (2003) structural break techniques and its result obtained from the Bai and Perron (2003).
are depicted in Table 8. The daily return series of ETH, XRP,
DASH and XEM has two break dates, the BTC, LTC, XLM,
XMR and ETC has single break date and the MKR has no
breakpoint. The conditional variance series of BTC, XRP and equations of all GARCH-type models are found to be positive
ETC has two break dates, the ETH, DASH and XEM has in almost all the cryptocurrencies, implying positive risk-
single break date and the LTC, XLM, XMR and MKR has no return relationship. The positive sign adheres to the signifi-
breakpoint. cant class of asset pricing models that highlights the direct
Table 9 indicates the results of GARCH-type models, viz. association between conditional expectations of excess returns
GARCH-M (1,1), TARCH-M (1,1), EGARCH-M (1,1) and and their conditional variances (Merton, 1980). The variance
PARCH-M (1,1) estimates for all the cryptocurrencies with equation of GARCH models in Panel A shows that both the
potential breaks, identified by Bai and Perron (2003) tech- ARCH (a1) and GARCH (b1) parameters are statistically
niques. The conditional variance coefficient (b2) in mean significant, and the sum of these parameters is close to one,

7
 Table 9

S. Palamalai, K.K. Kumar and B. Maity

GARCH-type models.
BTC ETH XRP LTC XLM XMR DASH ETC XEM MKR
Panel A: GARCH model
Mean equation
u1 0.00342* [2.5972] 0.00328 0.03128* 0.03481* 0.00947* 0.08052* [24.880] 0.00095 0.00023 [0.0536] 0.00506 0.01919*
[-1.3074] [-5.8475] [-20.651] [-3.0064] [-0.2258] [-0.9842] [-2.5601]
r1 0.02325 [1.1625] 0.04295 0.18337* 0.05074** 0.05751 0.18313* 0.00488 [0.2517] 0.05409 0.10751* 0.05088
[-1.4324] [-6.2158] [-2.0290] [-1.3850] [-5.9922] [-1.3544] [-4.4075] [-1.1308]
r2 0.42599** 1.33471** 0.40277 [1.2940] 0.69993** 1.31694** 0.53230* 0.35551* [17.809] 0.42164 [0.5015] 0.45198 [1.1192] 0.34868**
[2.1117] [2.2130] [2.2629] [2.3055] [-2.6795] [2.5482]
jD1 0.00267*** e 0.02579* [4.5085] 0.03268* [19.478] e 0.07753* 0.00341 0.00399 0.005998 [1.1471] e
[-1.8519] [-21.417] [-0.7324] [-0.9878]
jD2 e e 0.00031 [0.0867] e e e 0.00150 [0.6595] e 0.00480 e
[-1.5105]
Variance equation
u1 0.00016* [16.356] 0.00154* [5.7758] 0.00275* [18.543] 0.00014* [14.583] 0.00255* [8.0771] 0.00012* [6.5560] 0.00029* [5.1188] 0.00067* [5.2315] 0.00175* [9.4693] 0.00049* [6.0494]
a1 0.22005* [31.271] 0.19489* [9.2214] 0.36165* [14.718] 0.11807* [13.650] 0.15918* [6.9212] 0.12020* [11.152] 0.28473* [27.054] 0.21278* [7.6581] 0.50062* [20.449] 0.18518* [6.0319]
b1 0.78134* [175.81] 0.67324* [22.328] 0.55838* [38.584] 0.86799* [116.40] 0.68436* [23.035] 0.88161* [98.691] 0.75263* [91.213] 0.61099* [13.003] 0.45848* [21.120] 0.69002* [19.186]
jD3 8.90E-05* 0.00104* 0.00205* e 0.00201* e 0.00020* 0.00102* [5.2396] 0.00082* e
[-7.7020] [-4.5529] [-14.388] [-7.6935] [-3.6491] [-4.9902]
jD4 8.70E-06 e 1.20E-05 [0.2401] e e e e 0.00110* e e
[-1.1929] [-5.5013]
Diagnostics test statistics

+
AIC 3.42218 2.73801 2.34230 2.78356 2.32495 1.99123 2.94197 2.71752 2.40757 2.72318

MODEL
3.41624 2.72857 2.33021 2.77670 2.31111 1.98273 2.93175 2.70212 2.39628 2.70433
8

H-Q
ARCH-LM {1} 0.41014 (0.5219) 0.10915 (0.7412) 0.01148 (0.9147) 0.61756 (0.4320) 0.13826 (0.7101) 0.08517 (0.7704) 0.29135 (0.5894) 0.36178 (0.5476) 0.21941 (0.6395) 0.49692 (0.4811)
LB-Q {12} 6.9744 (0.859) 8.4819 (0.746) 4.7383 (0.966) 2.8307 (0.997) 4.6634 (0.968) 5.2997 (0.947) 9.5506 (0.655) 8.4819 (0.746) 10.795 (0.547) 2.6751 (0.614)
Panel B: TGARCH model
Mean equation
u1 0.00347** 0.00335 0.03701* 0.03911* 0.00927* 0.08031* [17.574] 0.00127 0.00077 [0.1727] 0.00492 0.01811**
[2.5003] [-1.3267] [-8.2594] [-18.275] [-2.8077] [-0.2997] [-0.9543] [-2.4140]
r1 0.02203 [1.1032] 0.04692 0.19466* 0.06721* 0.06653*** 0.18337* 0.00613 [0.2889] 0.05770 0.10846* 0.04582
[-1.5792] [-6.4123] [-2.8471] [-1.6708] [-5.9758] [-1.4866] [3.8897] [-1.0041]
r2 0.44430** 1.44338** 0.56561*** 1.05505* [3.5633] 1.48938** 0.55404* 0.32925* [13.971] 0.53754 [0.6405] 0.46133 [1.1332] 0.32277**
[2.1903] [2.3691] [1.8600] [2.5372] [-2.7826] [2.3653]
jD1 0.00266*** e 0.03204* [6.7976] 0.03726* [21.387] e 0.07741* 0.00348 0.00360 0.00589 [1.1247] e
[-1.8112] [-17.250] [-0.7547] [-0.8713]
jD2 e e 0.00043 [0.1384] e e e 0.00160 [0.7015] e 0.00472 e

Borsa Istanbul
[-1.4781]
Variance equation
u1 0.00016* [16.031] 0.00150* [5.7546] 0.00286* [16.385] 0.00012* [12.693] 0.00242* [7.5626] 0.00012* [6.5207] 0.00026* [4.8660] 0.00065* [5.3428] 0.00176* [9.4060] 0.00051* [6.2513]

_
a1 0.22649* [18.828] 0.20810* [8.5930] 0.54316* [13.747] 0.15716* [11.738] 0.19731* [6.2677] 0.11542* [10.722] 0.26147* [18.085] 0.27049* [6.9616] 0.51255* [12.330] 0.16555* [4.9506]
g1 0.01251 0.03804 0.28698* 0.09584* 0.10249* 0.00772 [0.5535] 0.04708*** 0.19051* 0.02237 0.05535 [1.3062]
[-0.9502] [-1.3303] [-6.2514] [-7.4516] [-2.6330] [1.6811] [-5.1085] [-0.4061]

Review xxx (xxxx) xxx

b1 0.78184* [169.61] 0.68109* [21.847] 0.51960* [40.631] 0.87672* [117.36] 0.69669* [22.688] 0.88190* [97.747] 0.75627* [93.592] 0.63988* [13.096] 0.45702* [20.336] 0.67947* [19.119]
jD3 8.74E-05* 0.00101* 0.00219* e 0.00188* e 0.00018* 0.00103* [4.9814] 0.00082* e
[-7.4622] [-4.5788] [-12.541] [-7.0891] [-3.4080] [-4.9755]
jD4 8.74E-06 e 0.00012** e e e e 0.00111* e e
[-1.2049] [2.0044] [-5.1615]
Diagnostics test statistics
 S. Palamalai, K.K. Kumar and B. Maity
AIC 3.42168 2.73731 2.35058 2.79744 2.32884 1.99014 2.94237 2.72949 2.40636 2.72510
H-Q 3.41507 2.72652 2.33728 2.78961 2.31302 1.98042 2.93316 2.71237 2.39382 2.70895
ARCH-LM {1} 0.43775 (0.5083) 0.17147 (0.6789) 0.07983 (0.7776) 1.18599 (0.2763) 0.01160 (0.9142) 0.08096 (0.7760) 0.35898 (0.5491) 0.51483 (0.4732) 0.21894 (0.6399) 0.43478 (0.5099)
LB-Q {12} 7.0262 (0.856) 3.9359 (0.985) 4.1811 (0.980) 3.2898 (0.993) 4.2724 (0.978) 5.5250 (0.938) 9.6726 (0.645) 8.0379 (0.782) 10.684 (0.556) 2.8053 (0.591)
Panel C: EGARCH model
Mean equation
u1 0.00344* [2.7755] 0.00361 0.05973* 0.03371* 0.00833** 0.07599* [17.589] 0.00162 0.00157 [0.3548] 0.00476 0.14055* [5.0593]
[-1.4567] [-13.548] [-17.110] [-2.4122] [-0.3841] [-0.8445]
r1 0.00445 0.06058** 0.17709* 0.06880* 0.07058*** 0.20355* 0.01206 [0.6380] 0.08036** 0.10853* 0.06319*
[-0.2361] [-2.1645] [-7.4673] [-3.5787] [-1.7040] [-7.8562] [-2.2129] [-4.0169] [-5.7205]
r2 0.58604** 1.67517* [2.7565] 0.98042* [3.0238] 0.95063* [3.1494] 1.46955** 1.00688* 0.01157 0.55963 [0.6775] 0.67093 [1.4204] 1.32851*
[2.3830] [2.4870] [-5.9333] [-0.1295] [-4.6117]
jD1 0.00263** e e 0.03171* [19.309] e 0.06946* 0.00206 0.00385 0.00573 [1.0406] e
[-2.0825] [-17.623] [-0.4825] [-0.9495]
jD2 e e e e e 0.00488* [3.5404] e 0.00547*** e
[-1.7903]
Variance equation
u1 0.70771* 0.86850* 0.57572* 0.36322* 0.90803* 0.26819* 1.08995* 1.25109* 0.99627* 4.31755*
[-33.471] [-8.7533] [-16.820] [-18.913] [-7.6798] [-13.856] [-29.688] [-6.3509] [-12.992] [-6.4282]
a1 0.42785* [37.066] 0.32701* [11.830] 0.34119* [20.462] 0.21013* [29.579] 0.29769* [8.0092] 0.25644* [18.714] 0.76466* [39.842] 0.28164* [8.1169] 0.48673* [21.153] 0.39966*
[-9.8370]
g1 0.01010 0.02515*** 0.10048* [8.9355] 0.06116* [11.081] 0.08115* [3.2711] 0.00750 [1.0146] 0.13773* [7.7322] 0.09374* [5.7254] 0.00400 [0.2566] 0.09179**
[-1.4253] [1.6656] [-2.1366]
b1 0.92356* [302.11] 0.86471* [47.790] 0.92362* [153.68] 0.95855* [336.17] 0.83931* [34.077] 0.98102* [379.00] 0.86497* [134.10] 0.81489* [26.101] 0.86698* [66.643] 0.02636

+
[-0.1787]

MODEL
jD3 0.03805* 0.14146* 0.04752* e 0.22718* e 0.23301* 0.14645* [4.4881] 0.05133* e
9

[-3.9652] [-5.0912] [-3.5783] [-6.3265] [-9.1694] [-3.2150]

jD4 0.04271* e 0.03149* e e e e 0.18817* e e
[-4.4878] [-2.7906] [-4.9293]
Diagnostics test statistics
AIC 3.43821 2.74318 2.36623 2.82701 2.32450 2.00232 2.85744 2.73267 2.40806 1.50181
H-Q 3.43161 2.73239 2.35293 2.81918 2.30868 1.99261 2.84721 2.71555 2.39552 1.48296
ARCH-LM {1} 0.13388 (0.7145) 0.58492 (0.4445) 0.38414 (0.5355) 5.83997 (0.0158) 0.02510 (0.8741) 0.02968 (0.8632) 1.48055 (0.2238) 0.12109 (0.7279) 0.14270 (0.7057) 0.00097 (0.9751)
LB-Q {12} 6.7755 (0.872) 3.3668 (0.992) 5.7072 (0.930) 8.2226 (0.768) 5.0127 (0.958) 8.0759 (0.779) 7.5929 (0.816) 7.7078 (0.808) 7.1351 (0.849) 0.0135 (1.000)
Panel D: PARCH model
Mean equation
u1 0.00476* [4.3827] 0.00309 0.05328* 0.00084 0.00913* 0.07709* [15.079] 0.00049 0.00093 [0.2221] 0.00584** 0.01804**
[-1.2430] [-12.387] [-0.5048] [-2.8958] [-0.1197] [-2.0291] [-2.3768]
r1 0.03206** 0.06494** 0.18681* 0.04981** 0.06870*** 0.20643* 0.01037 [0.4580] 0.08845** 0.10832* 0.04641
[-2.1182] [-2.2992] [-11.213] [-2.3597] [-1.7286] [-7.6354] [-2.4453] [-6.1174] [-1.0161]

Borsa Istanbul
r2 0.12784 [0.6149] 1.58587* [2.6499] 0.74819* [5.0160] 0.34252 [0.8950] 1.38024 [2.4273] 0.75245* 0.23189* [4.2796] 0.51950 [0.6597] 0.75170* [3.0021] 0.32118**
[-5.0674] [2.3631]

_
jD1 0.00347* e 0.04842* [12.055] e e 0.07221* 0.00421 0.00271 0.00735** e
[-3.1615] [-14.123] [-0.9236] [-0.6825] [2.5418]
jD2 e e 0.00412* [2.6684] e e e 0.00162 [0.6763] e 0.00595* e

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[-3.4198]
Variance equation
u1 0.00697* [5.4569] 0.00987** 0.04049* [6.9736] 0.00537* [5.1969] 9.23E-05 [0.4508] 0.00165* [4.1567] 9.30E-05** 0.00881 [1.5240] 0.02606* [3.7551] 0.00056 [1.3290]
[1.9808] [2.1395]
(continued on next page)
 S. Palamalai, K.K. Kumar and B. Maity
Table 9 (continued )
BTC ETH XRP LTC XLM XMR DASH ETC XEM MKR
a1 0.24513* [30.045] 0.18633* [10.181] 0.28652* [16.419] 0.11883* [17.656] 0.09518** 0.14843* [14.466] 0.28000* [22.536] 0.17279* [7.4372] 0.23151* [13.017] 0.19368* [6.3621]
[2.3248]
g1 0.04836** 0.07230 0.42862* 0.27238* 0.10482*** 0.03452 0.05991* [2.6372] 0.32373* 0.09338** 0.07549 [1.3001]
[2.5442] [-1.4395] [-10.775] [-9.2807] [-1.7989] [-1.0603] [-4.2087] [-2.4507]
b1 0.76702* [112.13] 0.72703* [26.239] 0.65356* [45.035] 0.86244* [109.24] 0.59222* [7.2859] 0.87699* [100.96] 0.74281* [74.861] 0.68985* [15.124] 0.73232* [43.833] 0.67961* [13.086]
d1 0.86130* [15.536] 1.14012* [5.5516] 0.60542* [9.7461] 1.20532* [19.172] 3.62604* [3.3930] 1.07272* [14.061] 2.36077* [15.507] 1.06840* [5.4403] 0.53111* [5.7663] 1.96950* [6.7117]
jD3 0.00219* 0.00448** 0.01253* 0.00357* 8.64E-05 e 6.55E-05** 0.00545** 0.00194** e
[-5.0490] [-2.4651] [-7.3184] [-5.9006] [-0.4621] [-2.0131] [2.2452] [-2.0345]
jD4 0.00029 e 0.00229** e e e e 0.00606** e e
[-1.0924] [2.1719] [-2.2992]
Diagnostics test statistics
AIC 3.43664 2.73978 2.38491 2.83734 2.32833 2.00411 2.94227 2.73659 2.43584 2.72016
H-Q 3.42938 2.72764 2.37040 2.82853 2.31053 1.99318 2.93102 2.71777 2.42204 2.69862
ARCH-LM{1} 0.38770 (0.5336) 0.72652 (0.3942) 0.00350 (0.9528) 7.76303 (0.0054) 1.09484 (0.2957) 2.70E-05 (0.9959) 1.08132 (0.2985) 0.27278 (0.6016) 0.00570 (0.9398) 0.27303 (0.6015)
LB-Q{12} 6.7710 (0.872) 2.8873 (0.996) 7.7210 (0.807) 10.444 (0.577) 7.1809 (0.845) 14.522 (0.269) 6.6832 (0.878) 8.5366 [0.742] 8.6905 (0.729) 30.631 (0.002)
Source: Author's estimates.
Note: Z statistics in square brackets and the numbers in parentheses are the p-values, ARCH-LM indicates the Lagrange Multiplier test for conditional heteroskedasticity (ARCH effects) under the null hypothesis
of homoscedasticity in the squared residuals and Ljung-Box Q{12} statistics testing for autocorrelation up to 12 lags under the null hypothesis of no autocorrelation in the standardized residuals. *, **, & ***
denote statistical significance at 1%, 5% and 10%, respectively.

+
MODEL
10

Borsa Istanbul
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 + MODEL

S. Palamalai, K.K. Kumar and B. Maity _

Borsa Istanbul Review xxx (xxxx) xxx

indicating that volatility shocks are quite persistent, indicating
that large changes (smaller changes) in returns are accompa-
nied by the large changes (small changes). In other words, it
reveals that the volatility shocks are not ephemeral, but a
persistent process.
In the variance equation of TGARCH models in Panel B,
the leverage coefficients (g1) are found to be less than zero in
the case of seven out of ten cryptocurrencies, implying
leverage effect in the return series. This leads to the conclu-
sions that fluctuations caused by positive (good) news are
greater than the ones caused by the same level of negative
(bad) news. The asymmetric coefficients (g1) in EGARCH
models under Panel C validates the same for eight crypto-
currencies. However, the asymmetric coefficients (g1) in the
PARCH models confirm that negative (bad) news will have a
larger impact on future volatility than positive shocks of the
same magnitude in the case of seven out of ten
cryptocurrencies.
Most importantly, the model selection criteria viz. Akaike
Information Criterion (AIC) and HannaneQuinn Information
Criterion (H-Q) was applied along with residual diagnostic
tests to identify the most suitable model that sufficiently
captures the conditional variance. The asymmetric GARCH
(1,1) models proved to be more efficient than the symmetric
GARCH (1,1) model, as shown by the lowest AIC and H-Q
information criterions in the case of leading cryptocurrencies.
Specifically, the PGARCH (1,1) model is the preferred
model, according to these criteria, for Ripple (XRP), Litecoin
(LTC), Monero (XMR), Ethereum Classic (ETC) and NEM
(XEM). The empirical evidences indicate that volatility
shocks are quite persistent and bad news that increases the
future volatility more than the good news. The EGARCH
(1,1) model and TGARCH (1,1) model are the best models
for Bitcoin (BTC) and Ethereum (ETH), and Stellar (XLM),
Dash (DASH) and Maker (MKR), respectively. The returns
from these cryptocurrencies exhibit volatility persistence. For
Bitcoin (BTC), Dash (DASH) and Maker (MKR), the nega-
tive shocks cause more volatility than the positive shocks of
the same magnitude. In the case of Ethereum (ETH) and
Stellar (XLM), the positive shocks (good news) produce
more volatility than negative shocks (bad news). All the
models successfully passed the diagnostic tests, indicating
that the models are free from ARCH effects and has no
autocorrelation problems.
On the basis of above analyses, the GARCH type models
can appropriately adapt to the volatility of leading crypto-
currencies. Moreover, the asymmetric GARCH (1,1) model
performs good estimation in the present case, confirming the
presence of persistent and asymmetric dynamics in volatility,
i.e. the asymmetry of the distribution of errors and the leverage
effect. This suggests that the selected leading crypto markets
are weak and inefficient (favours non-random walk hypothesis)
due to the presence of high volatility persistence in the returns.
4.4. Robustness checks
Following Urquhart (2016) and Resta et al. (2020), the full
sample is divided into two sub-periods to examine the
robustness of the results that were obtained from the entire
sample period. Authors have applied the QuandteAndrews
unknown breakpoint test to identify the subsample periods
for the respective cryptocurrencies and the results are shown in
Panel A of Table S2 (See the Supplementary Material, avail-
able online). The test results show significant breakpoints for
respective cryptocurrencies. Further, we employ the Chow
breakpoint test to confirm the consistency in the possible
structural breaks for the crypto coins under consideration and
the results are shown in Panel B of Table S2 (See the Sup-
plementary Material, available online). The statistically sig-
nificant Log likelihood ratio and Wald statistic confirms the
break points, suggested by the Quandt-Andrews test, hence the
analysis are performed prior to the break date (first subsample
period) and after the break date (second subsample period).
The findings obtained from the non-parametric and parametric
tests for the sub-sample periods are summarized in Table 10.
The empirical evidences from the non-parametric and para-
metric tests confirm that the leading cryptocurrency markets
outperform the random walk hypothesis, thereby supporting
the market inefficiency. However, despite the extensively used
non-parametric tests of random walk model, viz. Runs test and

Table 10
Summary of the findings from sub-sample periods.
Non Parametric tests First Sample Period Second Sample Period Reference
Runs The evidences support for random walk The evidences support for random walk (See Table S3, available
hypothesis for the cryptocurrency returns, hypothesis for the cryptocurrency returns, online)
except BTC, XRP and XMR. except BTC, XLM, DASH and MKR.
KeS test For both subsample periods, the findings confirm the evidence against the random-walk
hypothesis for all the leading cryptomarket returns.
Parametric tests
Multiple variance ratio The evidence rejects the random-walk The results provide evidence against the (See Table S4, available
test hypothesis except MKR. random walk in the case of all cryptomarket online)
returns.
GARCH-type models For both subsample periods, the empirical evidences document a positive risk-return relation. (See Table S5 and Table S6,
Besides, the results lend support to the claim that market inefficiency is due to the presence of available online)
high volatility persistence and asymmetric dynamics in volatility, i.e. the asymmetry of the
distribution of errors and the leverage effect. These results are consistent with the evidences of
whole sample period.

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Borsa Istanbul Review xxx (xxxx) xxx

KeS test, the studies employing non-parametric analyses are
needed for the robustness examination of the random walk
model of cryptocurrencies returns.
5. Summary and conclusion
In this paper, the authors have investigated the random walk
hypothesis of top-ten cryptocurrencies using non-parametric
and parametric approaches. Different from existing studies, a
random walk is employed for testing procedures that captures
the unknown structural breaks, volatility persistence and
asymmetric effects in the cryptocurrencies returns. The para-
metric approaches, viz. runs test and multiple variance ratio
test are applied and the results indicated that the former does
not reject the RWH for Bitcoin (BTC), Stellar (XLM), Dash
(DASH) and Maker (MKR), while the later validates the
market inefficiency of digital currencies of primary impor-
tance. A plethora of parametric tests viz. normality tests, unit
root test with and without breaks, GARCH-type models are
applied and the evidences confirm that cryptocurrencies
returns do not follow the behaviour of random walk.
From a perspective of GARCH-type models, the volatility
of leading cryptocurrencies exhibit the characteristics of sig-
nificant time-varying and clustering, i.e. large fluctuations in
returns tend to be followed by relatively large ones, while
smaller fluctuations will follow smaller ones. Moreover, the
asymmetric GARCH model seems to be superior to symmetric
GARCH model and the former confirms the significant
leverage effect, i.e. bad news has much bigger impact on
market volatility than good news for Bitcoin (BTC), Ripple
(XRP), Litecoin (LTC), Monero (XMR), Dash (DASH)
Ethereum Classic (ETC), NEM (XEM), and Maker (MKR).
Contrarily, the positive shocks (good news) create more
volatility than negative shocks (bad news) for Ethereum
(ETH), and Stellar (XLM). By establishing the asymmetric
GARCH models, it is found that the returns from the leading
cryptocurrencies exhibit persistency effect, thereby supporting
the market inefficiency.
Following Urquhart (2016) and Resta et al. (2020), entire set
of samples is divided into two sub-periods to examine the
robustness of the results that were obtained from the entire
sample period. The study employed the QuandteAndrews un-
known breakpoint test to identify the subsample periods for the
respective cryptocurrencies and the analysis is done with
respect to samples prior to the break date (first subsample
period) and after the break date (second subsample period). The
empirical evidences from the non-parametric and parametric
tests also provide the evidences against the random walk hy-
pothesis, thereby supporting market inefficiency. However,
despite the extensively used non-parametric tests of random
walk model, viz. Runs test and KeS test, the studies employing
non-parametric analyses are needed for the robustness exami-
nation of the random walk model of cryptocurrencies returns.
The leading cryptocurrency markets outperform the
random walk hypothesis, thereby, investors can use past in-
formation to predict future returns. The present study has
imperative implications for speculators within crypto-
currency markets and assists investors to devise gainful
trading strategies. Market participants can gain insight into
future quotes of these digital coins and realize a large amount
of profits. From a policy maker view point, the market in-
efficiency of these virtual currencies needs better policy
framework which can attract more informed traders espe-
cially arbitragers and hedgers through better price discovery
process. A plethora of various types of research in future is
much needed in the domain of market efficiency with respect
to investor sentiments, liquidity and macro-finance de-
terminants of digital coin prices. Also, there is a great po-
tential to examine whether cryptocurrencies act as a hedging
device to diversify risk in an investor portfolio with respect to
other conventional assets or not.
Conflict of interest
There is no conflict of interest.
Appendix A. Supplementary data
Supplementary data to this article can be found online at
https://doi.org/10.1016/j.bir.2020.10.006.
Appendix 1. The timeframe of subsample periods

S. No Name of the Symbol Full sample period First subsample period Second subsample period
Cryptocurrency
1 Bitcoin BTC July 17, 2010 e August 5, 2019 July 17, 2010 e February 26, 2014 February 27, 2014 e August 5, 2019
2 Ethereum ETH August 7, 2015 e August 5, 2019 August 7, 2015 e January 14, 2018 January 15, 2018 e August 5, 2019
3 Ripple XRP January 21, 2015 e August 5, 2019 January 21, 2015 e April 23, 2017 April 24, 2017 e August 5, 2019
4 Litecoin LTC October 24, 2013 e August 5, 2019 October 24, 2013 e September 11, 2014 September 12, 2014 e August 5, 2019
5 Stellar XLM January 17, 2017 e August 5, 2019 January 17, 2017 e January 4, 2018 January 5, 2018 e August 5, 2019
6 Monero XMR January 29, 2015 e August 5, 2019 January 29, 2015 e February 18, 2016 February 19, 2016 e August 5, 2019
7 Dash DASH February 3, 2014 e August 5, 2019 February 3, 2014 e January 28, 2015 January 29, 2015 e August 5, 2019
8 Ethereum Classic ETC July 27, 2016 e August 5, 2019 July 27, 2016 e May 25, 2017 May 26, 2017 e August 5, 2019
9 NEM XEM April 1, 2015 e August 5, 2019 April 1, 2015 e June 6, 2017 June 7, 2017 e August 5, 2019
10 Maker MKR January 29, 2017 e August 5, 2019 January 29, 2017eFebruary 10, 2018 February 11, 2018 e August 5, 2019

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