The Structure of Cryptocurrency Returns

Amin Shams
Additional contact information
Amin Shams: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: This paper documents a persistent structure in cryptocurrency returns and analyzes a broad set of characteristics that explain this structure. The results show that similarities in size, trading volume, age, consensus mechanism, and token industries drive the structure of cryptocurrency returns. But the highest variation is explained by a "connectivity" measure that proxies for similarity in cryptocurrencies' investor bases using their trading location. Currencies connected to other currencies that perform well generate sizably higher returns than the cross-section both contemporaneously and in the future. I examine three potential channels for these results. First, evidence from new exchange listings and a quasi-natural experiment shows that unobservable characteristics cannot explain the effect of connectivity. Second, decomposition of the order flows suggests that connectivity captures strong exchange-specific commonalities in crypto investors' demand that also spills over to other exchanges. Finally, analysis of social media data suggests that these demand shocks are a first order driver of cryptocurrency returns, largely because they can be perceived as a sign of user adoption.

JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-pay
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID3 ... ctid=3604322&mirid=1

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2020-11

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().