The Cross-Section of Cryptocurrency Returns

52 Pages Posted: 7 Oct 2018

See all articles by Nicola Borri

Nicola Borri

LUISS University - Department of Economics and Finance

Kirill Shakhnov

Einaudi Institute for Economics and Finance (EIEF)

Date Written: September 14, 2018

Abstract

This paper studies cryptocurrency investment strategies from the perspective of U.S. investors. We take Bitcoin as a representative cryptocurrency and consider exchanges around the globe where investors can trade different fiat and cryptocurrency pairs (i.e., U.S. dollar for Bitcoin). We treat each currency pair as a different asset. We start off large, persistent, and mean-reverting deviations in bitcoin prices, converted in U.S. dollars, and uncover two investment strategies based on information on past price deviations that generate large cross-sections of excess returns. A principal component analysis shows that most of the variation in the cross-sections of returns is explained by two common components. We find that these components are correlated with crypto factors but poorly correlated with a large set of standard non-crypto factors.

Keywords: bitcoin; cryptocurrencies; market anomalies; excess returns; kimchi premium

JEL Classification: G12; G14; G15; F31

Suggested Citation

Borri, Nicola and Shakhnov, Kirill, The Cross-Section of Cryptocurrency Returns (September 14, 2018). Available at SSRN: https://ssrn.com/abstract=3241485 or http://dx.doi.org/10.2139/ssrn.3241485

Nicola Borri (Contact Author)

LUISS University - Department of Economics and Finance ( email )

viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://docenti.luiss.it/borri/

Kirill Shakhnov

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://sites.google.com/site/kshakhnov/

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