Authors : Saiful Reeza Latif, Muhammad Azri Mohd, Mohd Nazrul Mohd Amin and Arwin Idham Mohamad
Abstract: The performance of cryptocurrency under efficient market hypothesis is important as it provides understanding to the behavior of its price movement. It is important to determine the cryptocurrency behavior under efficient market theory to ensure that no speculators or investors are able to take advantage as well as to guarantee fair competition and promising growth in the market. This study used Bitcoin and Litecoin time series data. The study analyzed the presence of heteroscedasticity, serial correlation and tested for structural break with bai-perron test. The sample data is model into GARCH (1, 1) unit root model with structural break. The market efficiency is analyzed through the performance of the model in unit root test namely the augmented Dickey-Fuller, DF-GLS, Phillips-Perron, KPSS, ERS and Ng-Perron. The analysis show that the market efficiency hypothesis in Bitcoin and Litecoin market is inconsistent with weak form of efficiency as the unit root test show Bitcoin model is stationary. This is consistent with the cryptocurrency behavior as it is subjected to speculative bubble. Cryptocurrency has no intrinsic value and it depends on the speculation power. Thus, investors might overvalue or undervalue the cryptocurrency which in turn further effect the market price.
Saiful Reeza Latif, Muhammad Azri Mohd, Mohd Nazrul Mohd Amin and Arwin Idham Mohamad, 2017. Testing the Weak Form of Efficient Market in Cryptocurrency. Journal of Engineering and Applied Sciences, 12: 2285-2288.