Risks and Returns of Cryptocurrency
67 Pages Posted: 8 Aug 2018 Last revised: 16 Aug 2018
Date Written: August 6, 2018
We establish that the risk-return tradeoff of cryptocurrencies (Bitcoin, Ripple, and Ethereum) is distinct from those of stocks, currencies, and precious metals. Cryptocurrencies have no exposure to most common stock market and macroeconomic factors or to the returns of currencies and commodities. In contrast, we show that the cryptocurrency returns can be predicted by factors which are specific to cryptocurrency markets – there is a strong time-series momentum effect and proxies for investor attention strongly forecast cryptocurrency returns. Finally, we create an index of exposures to cryptocurrencies of 354 industries in the US and 137 industries in China.
Keywords: Cryptocurrency, Risk and Return, Factor Pricing, Momentum, Investor Attention
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation