The Impact of Regulation in the Cryptocurrency Market: An Event Study Assessing Assets’ Returns Reaction

Posted: 15 Apr 2020 Last revised: 9 Dec 2020

See all articles by Ahmad Chokor

Ahmad Chokor

University Grenoble Alpes, Center for Studies and Applied Research in Management (CERAG)

Elise Alfieri

University Grenoble Alpes - Center for Studies and Applied Research in Management (CERAG); University Grenoble Alpes

Date Written: July 2, 2019

Abstract

Presented in the 13th International Risk Management Conference 2020

While the empirical evidence is still scant, we attempt in this paper to examine the impact of regulation on the cryptocurrency market. Do cryptocurrency traders perceive regulation in a beneficial or a costly way? Using an event study methodology for daily data covering the period 2015-2019, we assess how regulatory news and events have affected returns in the cryptocurrency market. The results suggest that events that increase the probability of a regulation adoption are associated with a negative abnormal return for concerned cryptocurrencies. We isolate events that consider cryptocurrencies under securities law and find that the reaction is amplified and that there is a negative and more significant relationship. Moreover, we assess whether specific cryptocurrency characteristics and in particular their liqudity explain cross-sectional variations in cryptocurrencies’ return reactions. We find that the magnitude of the returns’ reaction was not the same across all the cryptocurrencies samples. Furthermore, we examine the performance of cryptocurrencies on the long-term using the Sharpe ratio, CAPM, Fama-Frenceh 3-factors model, and Carhart model. After measuring a positive and significant performance in the pre-event period, we find a non-significant performance in the post-event period.

Keywords: Regulation, Cryptocurrencies risk, Crypto-Assets Returns, Market Liquidity, Market Efficiency

JEL Classification: F, G

Suggested Citation

Chokor, Ahmad and Alfieri, Elise, The Impact of Regulation in the Cryptocurrency Market: An Event Study Assessing Assets’ Returns Reaction (July 2, 2019). Available at SSRN: https://ssrn.com/abstract=3413544

Ahmad Chokor

University Grenoble Alpes, Center for Studies and Applied Research in Management (CERAG) ( email )

150 Rue de la Chimie
Saint-Martin-d'Hères, 38040
France

Elise Alfieri (Contact Author)

University Grenoble Alpes - Center for Studies and Applied Research in Management (CERAG) ( email )

150 Rue de la Chimie
Saint-Martin-d'Hères, 38040
France

University Grenoble Alpes ( email )

151 Rue des Universités
Saint-Martin-d'Hères, 38400
France

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