An empirical investigation on risk factors in cryptocurrency futures

Abstract

We investigate the cross-section asset-pricing patterns of major cryptocurrencies from 2017 to 2021. We show that the basis, momentum, and basis–momentum factors earn statistically significant excess returns, a result consistent with the findings reported in the commodity futures literature. The basis is the strongest signal predicting cross-sectional differences in cryptocurrency futures returns; the momentum-induced risk premium is not statistically powerful, whereas the basis momentum-induced risk premium disappears when accounting for the basis-induced risk premium. Daily factor returns are statistically much stronger than weekly factor returns. Monthly factor returns are nonsignificant.