On the (Almost) Stochastic Dominance of Cryptocurrency Factor Portfolios & Implications for Cryptocurrency Asset Pricing

European Financial Management, Forthcoming - SWFA 2021, EFMA 2021, World Finance Conference 2021, ENTFIN Annual Meeting 2022.

100 Pages Posted: 1 Jun 2021 Last revised: 1 Mar 2024

See all articles by Weihao Han

Weihao Han

University of Aberdeen - Business School

David Newton

University of Bath - School of Management

Emmanouil Platanakis

University of Bath - School of Management

Charles Sutcliffe

University of Reading - ICMA Centre

Xiaoxia Ye

University of Exeter Business School - Department of Finance

Date Written: April 16, 2023

Abstract

Cryptocurrency returns are highly non-normal, casting doubt on the standard performance metrics. We apply almost stochastic dominance (ASD), which does not require any assumption about the return distribution or degree of risk aversion. From 29 long-short cryptocurrency factor portfolios, we find eight that dominate our four benchmarks. Their returns cannot be fully explained by the three-factor coin model of Liu et al. (2022). So we develop a new three-factor model where momentum is replaced by a mispricing factor based on size and risk-adjusted momentum, which significantly improves pricing performance.

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, On the (Almost) Stochastic Dominance of Cryptocurrency Factor Portfolios & Implications for Cryptocurrency Asset Pricing (April 16, 2023). European Financial Management, Forthcoming - SWFA 2021, EFMA 2021, World Finance Conference 2021, ENTFIN Annual Meeting 2022., Available at SSRN: https://ssrn.com/abstract=3857315 or http://dx.doi.org/10.2139/ssrn.3857315

Weihao Han

University of Aberdeen - Business School ( email )

Business School
Aberdeen, Scotland AB15 5LQ
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

Charles M. Sutcliffe

University of Reading - ICMA Centre ( email )

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

Xiaoxia Ye

University of Exeter Business School - Department of Finance ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

HOME PAGE: http://www.xiaoxiaye.me/

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