Common Risk Factors in Cryptocurrency
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.
We thank Nicola Borri, Markus Brunnermeier, Kent Daniel, Zhiguo He, Andrew Karolyi, Alan Kwan, Ye Li, Nikolai Roussanov, Jinfei Sheng, Michael Sockin, and Jessica Wachter for comments. We are grateful to Colton Conley and Dean Li for their excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.