Factor Structure in Cryptocurrency Returns and Volatility

53 Pages Posted: 30 May 2019 Last revised: 19 Jun 2021

See all articles by Jiatao Liu

Jiatao Liu

Xi’an Jiaotong-Liverpool University

Ian W. Marsh

City University London - The Business School

Paolo Mazza

IESEG School of Management; LEM CNRS 9221

Mikael Petitjean


Date Written: May 16, 2019


We use high-frequency tick data to study stylized facts of the return and volatility dynamics of the nine most liquid cryptocurrencies. Factor structures exist in both returns and volatility, but the explanatory power from the common factor is much stronger for volatility. The factor structures do not relate strongly to fundamental economic factors, and Bitcoin – which we propose is a “crypto market factor” – also has only weak explanatory power. We date the bubble in Bitcoin allowing us to split the sample into pre-, bubble and post-bubble regimes. The importance of these different regimes is clear, revealing shifting relationships between the nine cryptocurrencies and Bitcoin. Model-free realized cryptocurrency betas with Bitcoin increase during the bubble and the explained fraction of cryptocurrency variance remains at an elevated level after the bubble collapsed.

Keywords: Cryptocurrency, Factor Structure, Bitcoin Bubble, Realised Volatility

JEL Classification: C38, G12, G13

Suggested Citation

Liu, Jiatao and Marsh, Ian William and Mazza, Paolo and Petitjean, Mikael, Factor Structure in Cryptocurrency Returns and Volatility (May 16, 2019). Available at SSRN: https://ssrn.com/abstract=3389152 or http://dx.doi.org/10.2139/ssrn.3389152

Jiatao Liu (Contact Author)

Xi’an Jiaotong-Liverpool University ( email )

Business Building (BS), South Campus, 8 Chongwen
, Lake Science and Education Innovation District
Suzhou, 215123

Ian William Marsh

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 5121 (Phone)
+44 20 7040 8881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/i.marsh

Paolo Mazza

IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Lille, 59 59000

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

LEM CNRS 9221 ( email )

Mikael Petitjean

LFIN/LIDAM, UCLouvain ( email )

Voie du Roman Pays 34
Louvain-La-Neuve, 1348

HOME PAGE: http://uclouvain.be/mikael.petitjean

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