Risks and Returns of Cryptocurrency

67 Pages Posted: 8 Aug 2018 Last revised: 16 Aug 2018

See all articles by Yukun Liu

Yukun Liu

Yale University, Department of Economics, Students

Aleh Tsyvinski

Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: August 6, 2018

Abstract

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

Liu, Yukun and Tsyvinski, Aleh, Risks and Returns of Cryptocurrency (August 6, 2018). Available at SSRN: https://ssrn.com/abstract=3226952 or http://dx.doi.org/10.2139/ssrn.3226952

Yukun Liu (Contact Author)

Yale University, Department of Economics, Students ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Aleh Tsyvinski

Yale University - Cowles Foundation ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-9163 (Phone)

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