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Risks and Returns of Cryptocurrency

Author

Listed:
  • Yukun Liu

    (Yale University)

  • Aleh Tsyvinski

    (Yale University)

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. 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.

Suggested Citation

  • Yukun Liu & Aleh Tsyvinski, 2019. "Risks and Returns of Cryptocurrency," 2019 Meeting Papers 160, Society for Economic Dynamics.
  • Handle: RePEc:red:sed019:160
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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