Risk Analysis of Cryptocurrency

International Journal of Cryptocurrency Research, Forthcoming

48 Pages Posted: 20 Sep 2021 Last revised: 20 Dec 2021

See all articles by Alexander Fleiss

Alexander Fleiss

Rebellion Research

Gihyen Eom

Columbia Mathematics of Finance

Eric Tu

UC Berkeley School of Financial Engineering

Date Written: September 15, 2021

Abstract

We compare the explainability of cryptocurrency returns from macro and microeconomic risk factors during stressed and normal market environments, in particular, analyzing the effects of the COVID-19 pandemic to cryptocurrency return explainability. We find that risk-premiums are encapsulated within cryptocurrency-specific market factors in both stressed and normal market conditions. Furthermore, cryptocurrency factors, particularly relating to liquidity, momentum, and counterparty risk, showed evidence of providing stronger predictability of cryptocurrency returns during the COVID-19 pandemic compared to pre-pandemic levels. We find that during the stressed market environment, Fama-French 5 factors continue to provide low explainability to cryptocurrency returns.

Keywords: Cryptocurrency, Liquidity, Momentum, Risk Analysis, Factor Model, PCA

JEL Classification: 25 C, 308 P

Suggested Citation

Fleiss, Alexander and Eom, Gihyen and Tu, Eric, Risk Analysis of Cryptocurrency (September 15, 2021). International Journal of Cryptocurrency Research, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3924387 or http://dx.doi.org/10.2139/ssrn.3924387

Alexander Fleiss (Contact Author)

Rebellion Research ( email )

United States

Gihyen Eom

Columbia Mathematics of Finance ( email )

NY
United States

Eric Tu

UC Berkeley School of Financial Engineering ( email )

2220 Piedmont Avenue
Berkeley, CA
United States

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