A Trend Factor for the Cross-Section of Cryptocurrency Returns

74 Pages Posted: 9 Nov 2023 Last revised: 30 Nov 2023

See all articles by Christian Fieberg

Christian Fieberg

City University of Applied Sciences

Gerrit Liedtke

University of Bremen

Thorsten Poddig

University of Bremen

Thomas Walker

Concordia University, Quebec

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business; University of Cape Town

Date Written: October 13, 2023

Abstract

We propose CTREND, a new trend factor for cryptocurrency returns, which aggregates price and volume information across various time horizons. Using data on more than 3,000 coins, we apply machine learning methods to exploit information from various technical indicators. The resulting signal reliably predicts the cross-section of cryptocurrency returns. The effect cannot be subsumed by known factors and remains remarkably robust across different sub-periods, market conditions, and alternative research designs. Moreover, it survives the impact of transaction costs and persists for large and liquid coins, paving the way for an effective trading strategy. Finally, an asset pricing model that incorporates CTREND outperforms competing factor models, providing a superior explanation of cryptocurrency returns.

Keywords: cryptocurrency markets, asset pricing, anomalies, return predictability, technical analysis, the cross-section of returns

JEL Classification: G12, G14

Suggested Citation

Fieberg, Christian and Liedtke, Gerrit and Poddig, Thorsten and Walker, Thomas and Zaremba, Adam, A Trend Factor for the Cross-Section of Cryptocurrency Returns (October 13, 2023). Available at SSRN: https://ssrn.com/abstract=4601972 or http://dx.doi.org/10.2139/ssrn.4601972

Christian Fieberg

City University of Applied Sciences ( email )

Werderstr. 73
Bremen, DE Bremen 28199
Germany

Gerrit Liedtke

University of Bremen ( email )

Thorsten Poddig

University of Bremen ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany

Thomas Walker

Concordia University, Quebec

Adam Zaremba (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

HOME PAGE: http://sites.google.com/view/adamzaremba

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

University of Cape Town

Cape Town
South Africa

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