IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v228y2023ics016517652300143x.html
   My bibliography  Save this article

Performance measurement of crypto funds

Author

Listed:
  • Dombrowski, Niclas
  • Drobetz, Wolfgang
  • Momtaz, Paul P.

Abstract

Crypto funds (CFs) are a growing intermediary in cryptocurrency markets. We evaluate CF performance using metrics based on alphas, value at risk, lower partial moments, and maximum drawdown. The performance of actively managed CFs is heterogeneous: While the average fund in our sample does not outperform the overall cryptocurrency market, there seem to be some few funds with superior skills. Given the non-normal nature of fund returns, the choice of the performance measure affects the rank orders of funds. Compared to the Sharpe ratio, the most commonly applied metric in the asset management practice, performance measures based on alphas and maximum drawdown lead to diverging fund rankings. Depending on their ranking order of preferences, CF investors should consider a bundle of metrics for fund selection and performance measurement.

Suggested Citation

  • Dombrowski, Niclas & Drobetz, Wolfgang & Momtaz, Paul P., 2023. "Performance measurement of crypto funds," Economics Letters, Elsevier, vol. 228(C).
    • Handle: RePEc:eee:ecolet:v:228:y:2023:i:c:s016517652300143x
    DOI: 10.1016/j.econlet.2023.111118
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016517652300143X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2023.111118?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bianchi, Daniele & Babiak, Mykola, 2022. "On the performance of cryptocurrency funds," Journal of Banking & Finance, Elsevier, vol. 138(C).
    2. Urquhart, Andrew, 2016. "The inefficiency of Bitcoin," Economics Letters, Elsevier, vol. 148(C), pages 80-82.
    3. Platanakis, Emmanouil & Urquhart, Andrew, 2019. "Portfolio management with cryptocurrencies: The role of estimation risk," Economics Letters, Elsevier, vol. 177(C), pages 76-80.
    4. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," The Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
    5. Fisch, Christian & Momtaz, Paul P., 2020. "Institutional investors and post-ICO performance: an empirical analysis of investor returns in initial coin offerings (ICOs)," Journal of Corporate Finance, Elsevier, vol. 64(C).
    6. Treynor, Jack L & Black, Fischer, 1973. "How to Use Security Analysis to Improve Portfolio Selection," The Journal of Business, University of Chicago Press, vol. 46(1), pages 66-86, January.
    7. Yukun Liu & Aleh Tsyvinski & Xi Wu, 2022. "Common Risk Factors in Cryptocurrency," Journal of Finance, American Finance Association, vol. 77(2), pages 1133-1177, April.
    8. Huang, Xiaoran & Lin, Juan & Wang, Peng, 2022. "Are institutional investors marching into the crypto market?," Economics Letters, Elsevier, vol. 220(C).
    9. Eling, Martin & Schuhmacher, Frank, 2007. "Does the choice of performance measure influence the evaluation of hedge funds?," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2632-2647, September.
    10. José Renato Haas Ornelas & Antônio Francisco Silva Júnior & José Luiz Barros Fernandes, 2012. "Yes, the choice of performance measure does matter for ranking of us mutual funds," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 17(1), pages 61-72, January.
    11. Agarwal, Vikas & Mullally, Kevin A. & Naik, Narayan Y., 2015. "The Economics and Finance of Hedge Funds: A Review of the Academic Literature," Foundations and Trends(R) in Finance, now publishers, vol. 10(1), pages 1-111, December.
    12. Ferson, Wayne E & Schadt, Rudi W, 1996. "Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-461, June.
    13. Kevin Dowd, 2000. "Estimating Value at Risk: A Subjective Approach," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 1(4), pages 43-46, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Lars Hornuf & Paul P. Momtaz & Rachel J. Nam & Ye Yuan, 2023. "Cybercrime on the Ethereum Blockchain," CESifo Working Paper Series 10598, CESifo.
    2. Kirill Kolmykov, 2023. "Analysis of Decentralization in Governance and Financial Efficiency of Companies: Studying the Relationship in the Field of Decentralized Finance," Papers 2311.02434, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Khaki, Audil & Prasad, Mason & Al-Mohamad, Somar & Bakry, Walid & Vo, Xuan Vinh, 2023. "Re-evaluating portfolio diversification and design using cryptocurrencies: Are decentralized cryptocurrencies enough?," Research in International Business and Finance, Elsevier, vol. 64(C).
    2. Grose, Chris & Dasilas, Apostolos & Alexakis, Christos, 2014. "Performance persistence in fixed interest funds: With an eye on the post-debt crisis period," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 155-182.
    3. Ko, Hyungjin & Son, Bumho & Lee, Jaewook, 2024. "Portfolio insurance strategy in the cryptocurrency market," Research in International Business and Finance, Elsevier, vol. 67(PA).
    4. Darolles, Serge & Gourieroux, Christian, 2010. "Conditionally fitted Sharpe performance with an application to hedge fund rating," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 578-593, March.
    5. Monika Mościbrodzka, 2021. "Alternative investment funds – the evaluation of managers’ abilities in the light of the amendments to the Act on Investment Fund," Bank i Kredyt, Narodowy Bank Polski, vol. 52(6), pages 517-544.
    6. Bedi, Prateek & Nashier, Tripti, 2020. "On the investment credentials of Bitcoin: A cross-currency perspective," Research in International Business and Finance, Elsevier, vol. 51(C).
    7. Yang, Fan & Havranek, Tomas & Irsova, Zuzana & Novak, Jiri, 2022. "Hedge Fund Performance: A Quantitative Survey," EconStor Preprints 260612, ZBW - Leibniz Information Centre for Economics.
    8. Łukasz Dopierała & Magdalena Mosionek-Schweda & Daria Ilczuk, 2020. "Does the Asset Allocation Policy Affect the Performance of Climate-Themed Funds? Empirical Evidence from the Scandinavian Mutual Funds Market," Sustainability, MDPI, vol. 12(2), pages 1-23, January.
    9. Caporin, Massimiliano & Costola, Michele & Jannin, Gregory & Maillet, Bertrand, 2018. "“On the (Ab)use of Omega?”," Journal of Empirical Finance, Elsevier, vol. 46(C), pages 11-33.
    10. Newton, David & Platanakis, Emmanouil & Stafylas, Dimitrios & Sutcliffe, Charles & Ye, Xiaoxia, 2021. "Hedge fund strategies, performance &diversification: A portfolio theory & stochastic discount factor approach," The British Accounting Review, Elsevier, vol. 53(5).
    11. Ammann, Manuel & Kind, Axel & Seiz, Ralf, 2010. "What drives the performance of convertible-bond funds?," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2600-2613, November.
    12. Carole Bernard & Massimiliano Caporin & Bertrand Maillet & Xiang Zhang, 2023. "Omega Compatibility: A Meta-analysis," Computational Economics, Springer;Society for Computational Economics, vol. 62(2), pages 493-526, August.
    13. Zakamouline, Valeri & Koekebakker, Steen, 2009. "Portfolio performance evaluation with generalized Sharpe ratios: Beyond the mean and variance," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1242-1254, July.
    14. Auer, Benjamin R., 2015. "Does the choice of performance measure influence the evaluation of commodity investments?," International Review of Financial Analysis, Elsevier, vol. 38(C), pages 142-150.
    15. Benedikt Hoechner & Peter Reichling & Gordon Schulze, 2015. "Pitfalls of downside performance measures with arbitrary targets," FEMM Working Papers 150018, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    16. Auer, Benjamin R. & Schuhmacher, Frank, 2013. "Robust evidence on the similarity of Sharpe ratio and drawdown-based hedge fund performance rankings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 153-165.
    17. Cynthia Weiyi Cai & Rui Xue & Bi Zhou, 2023. "Cryptocurrency puzzles: a comprehensive review and re-introduction," Journal of Accounting Literature, Emerald Group Publishing Limited, vol. 46(1), pages 26-50, June.
    18. Lars Hornuf & Paul P. Momtaz & Rachel J. Nam & Ye Yuan, 2023. "Cybercrime on the Ethereum Blockchain," CESifo Working Paper Series 10598, CESifo.
    19. Jung‐Soon Shin & Minki Kim & Dongjun Oh & Tong Suk Kim, 2019. "Do hedge funds time market tail risk? Evidence from option‐implied tail risk," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(2), pages 205-237, February.
    20. Fernandes, Marcelo & Mergulhão, João, 2016. "Anticipatory effects in the FTSE 100 index revisions," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 79-90.

    More about this item

    Keywords

    Crypto funds; Active investment management; Performance measurement; Fund selection; Blockchain-based digital assets;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    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:eee:ecolet:v:228:y:2023:i:c:s016517652300143x. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    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.