Abstract
The cryptocurrency market has been growing frantically in number of cryptocurrencies, online exchanges, and market capitalization, which has amplified the need for comprehensive and robust pricing models. Using a database of all eligible cryptocurrencies listed on the CoinMarketCap website, we study the relationship between returns and several potential pricing factors, such as size (market capitalization), momentum, liquidity, and maturity. The analysis was conducted from December 27, 2013, to December 29, 2020, using weekly data for 3'667 cryptocurrencies. Results point out that portfolios of cryptocurrencies with smaller market capitalization, higher reversal, lower liquidity, and lower maturity tend to offer higher returns. The 5-factor model that additionally includes illiquidity and maturity performs better than the 3-factor model previously proposed in the literature, meaning that illiquidity and maturity significantly help capture the cross-sectional cryptocurrency risk premia. The 5-factor model presented seems robust to different procedures to construct portfolios and factors.
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