Abstract
Current cryptocurrency indices are generally capitalization- or volume-weighted, assigning heavy weights to leading coins like Bitcoin. Such indices offer limited risk diversification and limited exposure to the success of altcoins. We propose the Smart Beta Indices of Cryptocurrencies (SBICs), which weight the components based on their dynamic risks and dependency structure. The SBICs provide better risk diversification, adding 0.13–0.31 Sharpe ratios and 24.42%–31.61% annualized returns over the cap-weighted index. The SBICs produce significant alphas using a cryptocurrency five-factor model that controls for exposures to the market, size, value, reversal, and betting-against-cryptocurrency-beta risks. Our results from the cryptocurrency market challenge a traditional opinion that smart beta outperformance generally results from the greater assumption of factor risks.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
