IDEAS home Printed from https://ideas.repec.org/p/ecl/ohidic/2020-11.html
   My bibliography  Save this paper

The Structure of Cryptocurrency Returns

Author

Listed:
  • Shams, Amin

    (Ohio State U)

Abstract

This paper documents a persistent structure in cryptocurrency returns and analyzes a broad set of characteristics that explain this structure. The results show that similarities in size, trading volume, age, consensus mechanism, and token industries drive the structure of cryptocurrency returns. But the highest variation is explained by a "connectivity" measure that proxies for similarity in cryptocurrencies' investor bases using their trading location. Currencies connected to other currencies that perform well generate sizably higher returns than the cross-section both contemporaneously and in the future. I examine three potential channels for these results. First, evidence from new exchange listings and a quasi-natural experiment shows that unobservable characteristics cannot explain the effect of connectivity. Second, decomposition of the order flows suggests that connectivity captures strong exchange-specific commonalities in crypto investors' demand that also spills over to other exchanges. Finally, analysis of social media data suggests that these demand shocks are a first order driver of cryptocurrency returns, largely because they can be perceived as a sign of user adoption.

Suggested Citation

  • Shams, Amin, 2020. "The Structure of Cryptocurrency Returns," Working Paper Series 2020-11, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2020-11
    as

    Download full text from publisher

    File URL: https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID3606759_code1542588.pdf?abstractid=3604322&mirid=1
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lin William Cong & Xi Li & Ke Tang & Yang Yang, 2021. "Crypto Wash Trading," Papers 2108.10984, arXiv.org.
    2. Ye Li & Simon Mayer & Simon Mayer, 2021. "Money Creation in Decentralized Finance: A Dynamic Model of Stablecoin and Crypto Shadow Banking," CESifo Working Paper Series 9260, CESifo.
    3. Paola Stolfi & Mauro Bernardi & Davide Vergni, 2022. "Robust estimation of time-dependent precision matrix with application to the cryptocurrency market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-25, December.
    4. Raphael Auer & Giulio Cornelli & Sebastian Doerr & Jon Frost & Leonardo Gambacorta, 2022. "Crypto trading and Bitcoin prices: evidence from a new database of retail adoption," BIS Working Papers 1049, Bank for International Settlements.
    5. Lin William Cong & Yizhou Xiao, 2021. "Categories and Functions of Crypto-Tokens," Springer Books, in: Maurizio Pompella & Roman Matousek (ed.), The Palgrave Handbook of FinTech and Blockchain, edition 1, chapter 0, pages 267-284, Springer.
    6. Matteo Benetton & Giovanni Compiani, 2020. "Investors’ Beliefs and Asset Prices: A Structural Model of Cryptocurrency Demand," Working Papers 2020-107, Becker Friedman Institute for Research In Economics.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecl:ohidic:2020-11. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cdohsus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.