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Common factors in the returns on cryptocurrencies

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  • Jung, Woosung
  • Park, Haerang

Abstract

We find that the three risk factors of Liu et al. (2022) capture only one-third of the variation in cryptocurrency excess returns. The remaining variation is mostly driven by a single common component that lies outside the three factor model framework. Although we cannot explain this fully using a large set of 135 global macroeconomic and financial variables as candidate proxies, the unknown common component seems to be associated with the value of fiat money. The role of the common component in cryptocurrency valuation becomes more dominant during monetary easing than during tightening periods.

Suggested Citation

  • Jung, Woosung & Park, Haerang, 2024. "Common factors in the returns on cryptocurrencies," Finance Research Letters, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:finlet:v:65:y:2024:i:c:s1544612324005154
    DOI: 10.1016/j.frl.2024.105485
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    More about this item

    Keywords

    Cryptocurrency; Common factor; Empirical asset pricing; Fiat money;
    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
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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