Resale Options and Cryptocurrency Mispricing
37 Pages Posted: 14 Oct 2018
Date Written: September 22, 2018
We examine the predictions of the resale option hypothesis (Scheinkman and Xiong, 2003) in cryptocurrency markets. The resale option hypothesis yields testable implications on the relationship between the level and volatility of mispricing, and the degree of heterogeneous beliefs. Using turnover as a proxy for heterogeneity, we ﬁnd evidence supporting the resale option hypothesis. These ﬁndings are persistent across various types of cryptocurrencies, and support the notion that cryptocurrencies trade above intrinsic value. Futhermore, we conduct two backtests to show that portfolios with higher turnover or resale option characteristics underperform portfolios with lower turnover or resale option characteristics. This supports the theory that disagreement is negatively related to future returns for positive biased assets (see Atmaz and Basak, 2018).
Keywords: Turnover, Mispricing, Heterogeneous Beliefs, Resale Option Hypothesis, Cryptocurrencies, Bitcoin
JEL Classification: C01, G12, G14
Suggested Citation: Suggested Citation