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

Huaigang Long; Ender Demir; Barbara Będowska-Sójka; Adam Zaremba; Syed Jawad Hussain Shahzad

doi:10.1016/j.frl.2022.103131

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

Huaigang Long^*, Ender Demir, Barbara Będowska-Sójka, Adam Zaremba, Syed Jawad Hussain Shahzad

^*Corresponding author for this work

Department of Business and Economics

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

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.

Original language	English
Article number	103131
Journal	Finance Research Letters
Volume	49
DOIs	https://doi.org/10.1016/j.frl.2022.103131
Publication status	Published - Oct 2022

Bibliographical note

Funding Information:
We thank Andrew Urquhart and John W. Goodell for helpful comments and suggestions. Barbara Będowska-Sójka acknowledges the support of the National Science Center of Poland [grant no. 2021/41/B/HS4/02443].

Publisher Copyright:
© 2022 The Author(s)

Other keywords

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

Access to Document

10.1016/j.frl.2022.103131Licence: CC BY-NC-ND

Cite this

@article{6a69644b8c924efdbc0dd52f2f20cbc6,

title = "Is geopolitical risk priced in the cross-section of cryptocurrency returns?",

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 = "Asset pricing, Cryptocurrencies, Geopolitical risk, Return predictability, The cross-section of returns",

author = "Huaigang Long and Ender Demir and Barbara B{\c e}dowska-S{\'o}jka and Adam Zaremba and Shahzad, {Syed Jawad Hussain}",

note = "Funding Information: We thank Andrew Urquhart and John W. Goodell for helpful comments and suggestions. Barbara B{\c e}dowska-S{\'o}jka acknowledges the support of the National Science Center of Poland [grant no. 2021/41/B/HS4/02443]. Publisher Copyright: {\textcopyright} 2022 The Author(s)",

year = "2022",

month = oct,

doi = "10.1016/j.frl.2022.103131",

language = "English",

volume = "49",

journal = "Finance Research Letters",