Journal article · 2022

Is geopolitical risk priced in the cross-section of cryptocurrency returns?

Long, H., Demir, E., Będowska-Sójka, B., Zaremba, A., Shahzad, S.J.H.

Finance Research Letters, 49, 103131

DOI: 10.1016/j.frl.2022.103131

Abstract

We examine the role of geopolitical risk in the cross-sectional pricing of cryptocurrencies. We calculate cryptocurrency exposure to changes in the geopolitical risk index and document that coins with the lowest geopolitical beta outperform those with high geopolitical beta. Our findings suggest that risk-averse investors require additional compensation as motivation to hold cryptocurrencies with low and negative geopolitical betas, and they are willing to pay a premium for assets with high and positive geopolitical betas. The effect cannot be explained by known return predictors and is robust to many considerations.

Keywords: Cryptocurrencies, The cross-section of returns, Asset pricing, Geopolitical risk, Return predictability

Full text: see the publisher version via DOI.

Preprint: https://doi.org/10.2139/ssrn.4109293

Research topics: Cryptocurrency markets · Safe havens, hedging and geopolitical risk

Funding

Cite

@article{frl2022_geopolitical_crypto,
  title = {Is geopolitical risk priced in the cross-section of cryptocurrency returns?},
  author = {Long, H. and Demir, E. and Będowska-Sójka, B. and Zaremba, A. and Shahzad, S.J.H.},
  year = {2022},
  journal = {Finance Research Letters},
  note = {49, 103131},
  doi = {10.1016/j.frl.2022.103131}
}