On the (Almost) Stochastic Dominance of Cryptocurrency Factor Portfolios & Implications for Cryptocurrency Asset Pricing

Weihao Han, David Newton, Emmanouil Platanakis, Charles Sutcliffe, Xiaoxia Ye

Research output: Working paper / PreprintWorking paper

Abstract

Cryptocurrency returns are highly non-normal, casting doubt on the standard performance metrics. We apply almost stochastic dominance (ASD), which does not require any assumption about the return distribution or degree of risk aversion. From 29 long-short cryptocurrency factor portfolios, we find eight that dominate our four benchmarks. Their returns cannot be fully explained by the three-factor coin model of Liu et al. (2022). So we develop a new three-factor model where momentum is replaced by a mispricing factor based on size and risk-adjusted momentum, which significantly improves pricing performance.
Original languageEnglish
Pages1-102
Number of pages102
Publication statusSubmitted - Jun 2021

Keywords

  • Cryptocurrencies
  • Asset Pricing
  • Almost Stochastic Dominance
  • Mispricing

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance (miscellaneous)
  • Business, Management and Accounting(all)

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