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

98 Pages Posted: 1 Jun 2021 Last revised: 6 Jun 2022

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

Charles Sutcliffe

University of Reading - ICMA Centre

Xiaoxia Ye

University of Liverpool Management School

Date Written: June 3, 2022

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 (June 3, 2022). 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

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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