Common Risk Factors in the Returns on Cryptocurrencies

25 Pages Posted: 21 May 2019

See all articles by Weiyi Liu

Weiyi Liu

Capital University of Economics and Business - School of Finance

Xuan Liang

Australian National University (ANU), Research School of Finance, Actuarial Studies and Statistics

Guowei Cui

Huazhong University of Science and Technology

Date Written: April 10, 2019

Abstract

This paper identifies three common risk factors in the returns on cryptocurrencies, which are related to cryptocurrency market return, market cap (size) and momentum of cryptocurrencies. Using the empirical data of cryptocurrencies, we find strong evidence that there are anomalous returns that decrease with size and increase with return momentum, and the momentum effect is more significant for small cryptocurrencies. Moreover, Fama-Macbeth regressions show the size and momentum combine to capture the cross-sectional variation in average cryptocurrency returns. In the tests of the three-factor model, we find most cryptocurrencies and portfolios have significant exposure to the proposed three factors with insignificant intercepts, demonstrating that the three factors explain average returns well on cryptocurrencies.

Keywords: Cryptocurrency; Market return; Size; Momentum; Factor model

JEL Classification: G12

Suggested Citation

Liu, Weiyi and Liang, Xuan and cui, guowei, Common Risk Factors in the Returns on Cryptocurrencies (April 10, 2019). Available at SSRN: https://ssrn.com/abstract=3380260 or http://dx.doi.org/10.2139/ssrn.3380260

Weiyi Liu (Contact Author)

Capital University of Economics and Business - School of Finance ( email )

Capital University of Economics and Business
Beijing, Beijng 100070
China

Xuan Liang

Australian National University (ANU), Research School of Finance, Actuarial Studies and Statistics ( email )

Canberra, Australian Capital Territory 2601
Australia

Guowei Cui

Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China
18171270610 (Phone)

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