Understanding Crypto-Asset Exposure: An Investigation of Its Impact on Performance and Stock Sensitivity Among Listed Companies

Abstract

This paper examines how adding crypto-assets onto companies' balance sheets changes their risk profile, affecting the price of their stocks. By incorporating the risk factor related to crypto-assets and employing the Fama-French 6-factor model as a control mechanism, we find that crypto-assets are fundamental in explaining the stock returns of the companies that engage in crypto markets and are more influential than Fama-French factors. The results reveal that crypto-asset influence on companies' risk profile is substantial, highlighting the importance of considering this asset class when evaluating investment decisions. The study makes significant contributions to academic literature, providing new insights into the impact of companies' exposure to crypto-assets, portfolio performance, and the dynamics of this exposure over time. The findings can help corporations and investors make informed decisions about allocating crypto-assets and assess the potential implications of their involvement in the crypto-asset market.

Keywords: crypto-assets, cryptocurrencies, diversification, risk factors, factor models

JEL Classification: G12, G14, G32