Risks And Returns Of Cryptocurrencies

Risks and returns of cryptocurrencies

Risks and returns of cryptocurrencies

Risks and Returns of Cryptocurrency

67 PagesPosted: 8 Aug 2018Last revised: 16 Aug 2018

There are 2 versions of this paper

Date Written: August 6, 2018

Abstract

We establish that the risk-return tradeoff of cryptocurrencies (Bitcoin, Ripple, and Ethereum) is distinct from those of stocks, currencies, and precious metals.

Cryptocurrencies have no exposure to most common stock market and macroeconomic factors or to the returns of currencies and commodities.

XRP ETH BTC Risks and Returns of Cryptocurrency, SBI Holdings JV OneConnect, Analyzing Fear & Greed

In contrast, we show that the cryptocurrency returns can be predicted by factors which are specific to cryptocurrency markets – there is a strong time-series momentum effect and proxies for investor attention strongly forecast cryptocurrency returns. Finally, we create an index of exposures to cryptocurrencies of 354 industries in the US and 137 industries in China.

Keywords: Cryptocurrency, Risk and Return, Factor Pricing, Momentum, Investor Attention

JEL Classification: G10, G11, G12

Suggested Citation:Suggested Citation

Liu, Yukun and Tsyvinski, Aleh, Risks and Returns of Cryptocurrency (August 6, 2018).

Risks and returns of cryptocurrencies

Available at SSRN: https://ssrn.com/abstract=3226952 or http://dx.doi.org/10.2139/ssrn.3226952