Working Paper: NBER ID: w25882
Authors: Yukun Liu; Aleh Tsyvinski; Xi Wu
Abstract: We find that three factors – cryptocurrency market, size, and momentum – capture the cross-sectional expected cryptocurrency returns. We consider a comprehensive list of price- and market-related factors in the stock market, and construct their cryptocurrency counterparts. Nine cryptocurrency factors form successful long-short strategies that generate sizable and statistically significant excess returns. We show that all of these strategies are accounted for by the cryptocurrency three-factor model.
Keywords: cryptocurrency; asset pricing; factors
JEL Codes: G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cryptocurrency market size (E42) | cross-sectional expected returns (G17) |
| momentum factors (G41) | cross-sectional expected returns (G17) |
| zero-investment long-short strategy (smallest coins vs largest coins) (G11) | excess weekly returns (G12) |
| momentum strategies (C69) | excess returns (D46) |
| three-factor model (C38) | excess returns of nine successful zero-investment strategies (G11) |