Title: The cross-section of cryptocurrency returns
Authors: Kirill Shakhnov - University Of Surrey (United Kingdom) [presenting]
Nicola Borri - LUISS University (Italy)
Abstract: Investors can invest in cryptocurrencies on a multitude of exchanges located in different countries and against different fiat currencies and cryptocurrencies. We start off large and persistent differences in bitcoin prices, converted to U.S. dollars, across exchange-currency pairs. These differences provide information about each pair's exposure to common risk factors, which we identify by building portfolios sorted on bitcoin past price deviations and accounting for transaction costs and execution risks. A single crypto factor, Carry, explains most of the variation in bitcoin excess returns. Portfolios with higher average returns are riskier because have higher (lower) returns in good (bad) times for cryptocurrency investors: when trading volume is larger (smaller) and the probability of exchange shutdowns lower (higher).