On the (almost) stochastic dominance of cryptocurrency factor portfolios and implications for cryptocurrency asset pricing

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

Research output: Contribution to journalArticlepeer-review

1 Citation (SciVal)

Abstract

Cryptocurrency returns are highly nonnormal, casting doubt on the standard performance metrics. We apply almost stochastic dominance, 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. 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
Number of pages40
JournalEuropean Financial Management
Early online date1 Jun 2023
DOIs
Publication statusE-pub ahead of print - 1 Jun 2023

Keywords

  • almost stochastic dominance
  • asset pricing
  • cryptocurrencies
  • mispricing

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Accounting

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