The Cross-Section of Cryptocurrency Returns

91 Pages Posted: 7 Oct 2018 Last revised: 18 Nov 2021

See all articles by Nicola Borri

Nicola Borri

LUISS University - Department of Economics and Finance

Kirill Shakhnov

University of Surrey

Date Written: May 28, 2019

Abstract

At a given point in time, bitcoin prices are different on exchanges located in different countries, or against different currencies. While existing literature attributes the largest price differences to frictions, like market segmentation, trading platforms advertize how to execute trades based on this information. We provide a novel risk-based explanation of these price differences for a sample containing the most reputable exchanges and after accounting for all transaction costs and limitations to trade. Bitcoin prices for more ``expensive'' pairs are riskier because they depreciate more in bad times for cryptocurrency investors, when aggregate liquidity and investor sentiment are lower.

Keywords: cryptocurrencies; bitcoin; liquidity; discount

JEL Classification: G12; G14; G15; F31

Suggested Citation

Borri, Nicola and Shakhnov, Kirill, The Cross-Section of Cryptocurrency Returns (May 28, 2019). 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

University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

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

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