Cryptocurrency Factor Portfolios: Performance, Decomposition and Pricing Models

104 Pages Posted: 1 Jun 2021

See all articles by Weihao Han

Weihao Han

University of Bath - School of Management

David Newton

University of Bath - School of Management

Emmanouil Platanakis

University of Bath - School of Management; affiliation not provided to SSRN

Charles Sutcliffe

University of Reading - ICMA Centre

Xiaoxia Ye

University of Liverpool Management School

Date Written: May 31, 2021

Abstract

The empirical distributions of cryptocurrency returns are highly non-normal, casting doubt on the performance metrics. So we apply almost stochastic dominance (ASD), which does not require any assumption about the return distribution, to examine cryptocurrency factor portfolios. Using portfolios based on factors that can be constructed from available market information, we find 13 factor portfolios that dominate our four benchmarks. The long-only strategy contributes more to this dominance than does the short-only strategy. We test whether returns on the 13 dominant factor portfolios can be explained by a coin market three-factor model. This model has limited success, and its performance is significantly improved by the inclusion of a mispricing factor.

Keywords: Cryptocurrencies, Asset Pricing, Almost Stochastic Dominance, Mispricing

JEL Classification: G11, G12

Suggested Citation

Han, Weihao and Newton, David and Platanakis, Emmanouil and Sutcliffe, Charles M. and Ye, Xiaoxia, Cryptocurrency Factor Portfolios: Performance, Decomposition and Pricing Models (May 31, 2021). Available at SSRN: https://ssrn.com/abstract=3857315 or http://dx.doi.org/10.2139/ssrn.3857315

Weihao Han

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

David Newton

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Emmanouil Platanakis (Contact Author)

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

affiliation not provided to SSRN

Charles M. Sutcliffe

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Xiaoxia Ye

University of Liverpool Management School ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

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