The pricing of bad contagion in cryptocurrencies: A four-factor pricing model

Syed Jawad Hussain Shahzad, Elie Bouri (), Tanveer Ahmad, Muhammad Abubakr Naeem and Xuan Vinh Vo

Finance Research Letters, 2021, vol. 41, issue C

Abstract: We examine as if the incorporation of the contagion risk, which is found significant in cryptocurrencies, can make the resulting four-factor pricing model offers an improved explanatory power. We estimate contagion measure for the large left-tail events in the idiosyncratic disturbances of cryptocurrencies and then incorporate it into the three-factor pricing model. Using data of 1,967 cryptocurrencies from January 1, 2015 to September 26, 2019, we show that the four-factor pricing model outperforms both the cryptocurrency-CAPM and three-factor models. Our findings are useful to researchers of cryptocurrency anomalies and those applying quantitative strategies in the cryptocurrency market.

Keywords: Asset pricing; factors model; bad contagion; cryptocurrencies (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:41:y:2021:i:c:s1544612320316111

DOI: 10.1016/j.frl.2020.101797

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