Crypto Premium, Higher-Order Moments and Tail Risk

39 Pages Posted: 20 Jul 2021 Last revised: 6 Sep 2022

See all articles by Nicola Borri

Nicola Borri

LUISS University - Department of Economics and Finance

Paolo Santucci de Magistris

Luiss University of Rome

Date Written: July 19, 2021

Abstract

To what extent bitcoin returns reflect the compensation for skewness and kurtosis in the stochastic discount factor, namely the crypto premium? To answer this question we consider a flexible dynamic specification for high-order moments and tail risk via a stochastic component responsible for sudden and large price moves, that we call jumps. A relevant portion of the bitcoin variability can be attributed to jumps, and both skewness and kurtosis are drivers of the crypto premium. Higher investor attention and lower liquidity are associated with a higher premium, while co-skewness and co-kurtosis help explaining the returns of a large panel of cryptocurrencies.

Keywords: bitcoin, crypto premium, jumps, skewness, kurtosis

JEL Classification: C13, F31, G12, G13

Suggested Citation

Borri, Nicola and Santucci de Magistris, Paolo, Crypto Premium, Higher-Order Moments and Tail Risk (July 19, 2021). Available at SSRN: https://ssrn.com/abstract=3889169 or http://dx.doi.org/10.2139/ssrn.3889169

Nicola Borri (Contact Author)

LUISS University - Department of Economics and Finance ( email )

viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://docenti.luiss.it/borri/

Paolo Santucci de Magistris

Luiss University of Rome ( email )

Viale Romania 32
Rome, 00197
Italy

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