Is Downside Risk Priced In Cryptocurrency Market?

28 Pages Posted: 17 Sep 2020

See all articles by Victoria Dobrynskaya

Victoria Dobrynskaya

National Research University Higher School of Economics

Date Written: September 16, 2020

Abstract

I look at the cryptocurrency market through the prism of standard multifactor asset-pricing models with particular attention to the downside market risk. The analysis for 1,700 coins reveals that there is a significant heterogeneity in the exposure to the downside market risk, and that a higher downside risk exposure is associated with higher average returns. The extra downside risk is priced with a statistically significant premium in cross-sectional regressions. Adding the downside risk component to the CAPM and the 3-factor model for cryptocurrencies improves the explanatory power of the models significantly. The downside risk is orthogonal to the size and momentum risks and constitutes an important forth component in the multifactor cryptocurrency pricing model.

Keywords: cryptocurrency, coins, cryptofinance, alternative investments, downside risk, DR-CAPM

JEL Classification: D14, G12, G15

Suggested Citation

Dobrynskaya, Victoria, Is Downside Risk Priced In Cryptocurrency Market? (September 16, 2020). Higher School of Economics Research Paper No. WP BRP 79/FE/2020, Available at SSRN: https://ssrn.com/abstract=3693837 or http://dx.doi.org/10.2139/ssrn.3693837

Victoria Dobrynskaya (Contact Author)

National Research University Higher School of Economics ( email )

26, Shabolovka st.
Moscow, 119017
Russia

HOME PAGE: http://www.hse.ru

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