The pricing of bad contagion in cryptocurrencies: A four-factor pricing model

Syed Jawad Hussain Shahzad; Elie Bouri; Tanveer Ahmad; Muhammad Abubakr Naeem; Xuan Vinh Vo

doi:10.1016/j.frl.2020.101797

The pricing of bad contagion in cryptocurrencies: A four-factor pricing model

Syed Jawad Hussain Shahzad, Elie Bouri, Tanveer Ahmad, Muhammad Abubakr Naeem, Xuan Vinh Vo

Research output: Contribution to journal › Article › peer-review

30 Citations (Scopus)

Abstract

We examine as if the incorporation of the contagion risk, which is found significant in cryptocurrencies, can make the resulting four-factor pricing model offers an improved explanatory power. We estimate contagion measure for the large left-tail events in the idiosyncratic disturbances of cryptocurrencies and then incorporate it into the three-factor pricing model. Using data of 1,967 cryptocurrencies from January 1, 2015 to September 26, 2019, we show that the four-factor pricing model outperforms both the cryptocurrency-CAPM and three-factor models. Our findings are useful to researchers of cryptocurrency anomalies and those applying quantitative strategies in the cryptocurrency market.

Original language	English
Article number	101797
Journal	Finance Research Letters
Volume	41
DOIs	https://doi.org/10.1016/j.frl.2020.101797
Publication status	Published - Jul 2021
Externally published	Yes

Keywords

Asset pricing
bad contagion
cryptocurrencies
factors model

ASJC Scopus subject areas

Finance

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10.1016/j.frl.2020.101797

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abstract = "We examine as if the incorporation of the contagion risk, which is found significant in cryptocurrencies, can make the resulting four-factor pricing model offers an improved explanatory power. We estimate contagion measure for the large left-tail events in the idiosyncratic disturbances of cryptocurrencies and then incorporate it into the three-factor pricing model. Using data of 1,967 cryptocurrencies from January 1, 2015 to September 26, 2019, we show that the four-factor pricing model outperforms both the cryptocurrency-CAPM and three-factor models. Our findings are useful to researchers of cryptocurrency anomalies and those applying quantitative strategies in the cryptocurrency market.",

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AU - Naeem, Muhammad Abubakr

AU - Vo, Xuan Vinh

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AB - We examine as if the incorporation of the contagion risk, which is found significant in cryptocurrencies, can make the resulting four-factor pricing model offers an improved explanatory power. We estimate contagion measure for the large left-tail events in the idiosyncratic disturbances of cryptocurrencies and then incorporate it into the three-factor pricing model. Using data of 1,967 cryptocurrencies from January 1, 2015 to September 26, 2019, we show that the four-factor pricing model outperforms both the cryptocurrency-CAPM and three-factor models. Our findings are useful to researchers of cryptocurrency anomalies and those applying quantitative strategies in the cryptocurrency market.

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The pricing of bad contagion in cryptocurrencies: A four-factor pricing model

Abstract

Keywords

ASJC Scopus subject areas

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