Cryptocurrency returns under empirical asset pricing |
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| Institution: | 1. Finance, Simmons University, 300 Fenway, Boston, MA 02115, United States of America;2. Finance, McAfee School of Business, Union University, Jackson, TN 38305, United States of America;1. Accounting and Finance Department, United Arab Emirates University, P.O. Box 15551, Al-Ain, United Arab Emirates;2. South Ural State University, Lenin Prospect 76, Chelyabinsk 454080, Russian Federation;3. Trinity Business School, Trinity College Dublin, Ireland;4. University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam;5. Jiangxi University of Finance and Economics, China;6. Nottingham University Business School, University of Nottingham Malaysia;7. Department of Finance, School of Business, Monash University (Malaysia Campus), Bandar Sunway, Selangor, 47500, Malaysia;1. Department of Finance and Economics, School of Business Administration, University of Sharjah, United Arab Emirates;2. Faculty of Business and Management, University of Balamand, P.O.Box: 100, Tripoli, Lebanon;3. Cyprus International Institute of Management (CIIM), P. O. Box 20378, 2151 Nicosia, Cyprus;4. College of Business Administration, Northern Border University, Arar 91431, Saudi Arabia;5. Institut Supérieur de Gestion de Gabès, Gabès Université, Gabès 6002, Tunisia.;1. School of Economics and Finance, Queen Mary University of London, UK;2. Department of Accounting and Finance, Lancaster University Management School, Lancaster, UK |
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| Abstract: | This study examines the predictability of cryptocurrency returns based on investors' risk premia. Prior studies that have examined the predictability of cryptocurrencies using various economic risk factors have reported mixed results. Our out-of-sample evidence identifies the existence of a significant return predictability of cryptocurrencies based on the cryptocurrency market risk premium. Consistent with capital asset pricing theory (CAPM), our results show that investors often require higher positive returns before taking on any additional risks, particularly in terms of riskier assets like cryptocurrencies. Tests involving the CAPM model demonstrates that the three largest cryptocurrencies have significant exposures to the proposed market factor with insignificant intercepts, demonstrating that the market factor explains average cryptocurrency returns very well. |
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