Cryptocurrency Factor Portfolios: Performance, Decomposition and Pricing Models
104 Pages Posted: 1 Jun 2021
Date Written: May 31, 2021
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: Suggested Citation