The resilience of cryptocurrency market efficiency to COVID-19 shock

Leonardo H S Fernandes; Elie Bouri; José W L Silva; Lucian Bejan; Fernando H A de Araujo

doi:10.1016/j.physa.2022.128218

The resilience of cryptocurrency market efficiency to COVID-19 shock

Physica A. 2022 Dec 1:607:128218. doi: 10.1016/j.physa.2022.128218. Epub 2022 Oct 3.

Authors

Leonardo H S Fernandes¹, Elie Bouri², José W L Silva³, Lucian Bejan³, Fernando H A de Araujo⁴

Affiliations

¹ Department of Economics and Informatics, Federal Rural University of Pernambuco, Serra Talhada, PE 56909-535, Brazil.
² School of Business, Lebanese American University, Lebanon.
³ Department of Statistics and Informatics, Federal Rural University of Pernambuco, Recife, PE 52171-900, Brazil.
⁴ Federal Institute of Education, Science and Technology of Paraíba, Campus Patos, PB. Acesso rodovia PB 110, S/N Alto Tubiba CEP: 58700-030, PB, Patos, Brazil.

Abstract

We examine the price disorder and informational efficiency of five cryptocurrencies (Bitcoin, BNB, Cardano, Ethereum, and XRP) before and during the COVID-19 pandemic. In this sense, we estimate the permutation entropy and Fisher information measure (FIM). We use these complexity measures to construct the Shannon-Fisher causality plane (SFCP) to map these cryptocurrencies and their respective locations in a two-dimensional plane and then apply the sliding time window approach to study the temporal evolution of informational efficiency. All cryptocurrencies exhibit high but slightly varying informational efficiency during both periods. Cardano was the most efficient cryptocurrency. These results might point to the increasing maturity and lower potential for price predictability, which matter to cryptocurrencies' usage for liquidity risk diversification strategy.

Keywords: COVID-19; Cryptocurrencies; Efficiency; Information theory quantifiers; Price time series.