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Risks and Returns of Cryptocurrency

Author

Listed:
  • Yukun Liu
  • Aleh Tsyvinski

Abstract

We establish that cryptocurrency returns are driven and can be predicted by factors that are specific to cryptocurrency markets. Cryptocurrency returns are exposed to cryptocurrency network factors but not cryptocurrency production factors. We construct the network factors to capture the user adoption of cryptocurrencies and the production factors to proxy for the costs of cryptocurrency production. Moreover, there is a strong time-series momentum effect, and proxies for investor attention strongly forecast future cryptocurrency returns.

Suggested Citation

  • Yukun Liu & Aleh Tsyvinski, 2021. "Risks and Returns of Cryptocurrency," The Review of Financial Studies, Society for Financial Studies, vol. 34(6), pages 2689-2727.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:6:p:2689-2727.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa113
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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