Downside risk and the cross-section of cryptocurrency returns

Wei Zhang, Yi Li, Xiong Xiong and Pengfei Wang

Journal of Banking & Finance, 2021, vol. 133, issue C

Abstract: This paper investigates whether investors can earn higher profits by holding cryptocurrencies with higher downside risk. Both portfolio-level analyses and cryptocurrency-level cross-sectional regressions suggest a positive cross-sectional relation between downside risk and future returns in the cryptocurrency market. In addition to the risk-return tradeoff theory, the limits-to-arbitrage theory also has some explanatory power for these results. Moreover, we examine the source of downside risk premium, the existence of upside risk premium, as well as the intertemporal relation between downside risk and future returns. Collectively, our findings highlight the important role of downside risk in determining cryptocurrency prices.

Keywords: Cryptocurrency; Downside risk; Return predictability (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002053

DOI: 10.1016/j.jbankfin.2021.106246

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