On Empirical Challenges in Forecasting Market Betas in Crypto Markets

Jan Sila, Michael Mark and Ladislav Krištoufek ()
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Michael Mark: Chair of Operations, Economics and Strategy, Ecole Polytechnique Federale de Lausanne, Station 5, CH-1015 Lausanne, Switzerland

No 2022/19, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper investigates the predictability of market betas for crypto assets. The market beta is the optimal weight of a short position in a simple two-asset portfolio hedging the market risk. Investors are therefore keen to forecast the market beta accurately. Estimating the market beta is a fundamental financial problem and we document pervasive empirical issues that arise in the emerging market of crypto assets. Although recent empirical results about US stocks suggest predictability of the future realized betas about 55%, predictability for the universe of crypto assets is at most 20%. Our results suggest that the crypto market betas are highly sensitive not only to the beta estimation method but also to the selection of the market index. Thus we also contribute to the discussion on the appropriate market representation.

Keywords: C21; C53; C58; G12 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2022-08, Revised 2022-08
New Economics Papers: this item is included in nep-pay and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2022_19

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