Toward a Factor Structure in Crypto Asset Returns

Abstract

A new market has emerged from active trading of major cryptocurrencies and the listing of many initial coin offering (ICO) tokens. The authors conduct an early investigation into potential factor structures in the expected returns of crypto assets. They find that crypto assets with large market capitalization, low volatility, and high past returns tend to outperform in the following month. These are suggestive evidences for an emerging factor structure, even though crypto asset returns are still largely dominated by idiosyncratic noise. Their findings could help investors make better decisions in the nascent crypto asset market.

TOPICS: Currency, exchanges/markets/clearinghouses, quantitative methods