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Discussion Paper Details

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Title: Blockchain Characteristics and the Cross-Section of Cryptocurrency Returns

Author(s): Siddharth Bhambhwani, Stefanos Delikouras and George Korniotis

Publication Date: May 2019

Keyword(s): Bitcoin, cointegration, Dash, ethereum, GMM estimation, Hashrate, Investor Sentiment, Litecoin and network

Programme Area(s): Financial Economics

Abstract: We examine the relation between cryptocurrency returns and two blockchain characteristics, computing power and network size. We show that cryptocurrency prices are cointegrated with computing power and network. Further, cryptocurrency returns have positive and significant risk exposures to factors based on aggregate computing power and network size even after controlling for Bitcoin's return and sentiment-related factors. The two aggregate blockchain characteristics are procyclical asset pricing factors with positive risk premia and explain a significant portion of the cross-sectional variation in expected cryptocurrency returns. In out-of-sample tests, the blockchain factors can explain the return variation of a broad set of cryptocurrencies.

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Bibliographic Reference

Bhambhwani, S, Delikouras, S and Korniotis, G. 2019. 'Blockchain Characteristics and the Cross-Section of Cryptocurrency Returns'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13724