Cross-Sectional Interactions in Cryptocurrency Returns

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Authors
Mercik, Aleksander ORCID logo 0000-0003-1076-6619
Karim, Sitara ORCID logo 0000-0001-5086-6230
Będowska-Sójka, Barbara ORCID logo 0000-0001-5193-8304
Zaremba, Adam ORCID logo 0000-0001-5879-9431
Date
2024-11-30
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Publisher
Elsevier
License
Creative Commons License
Creative Commons Attribution 4.0 International License
Abstract
We investigate interaction effects in cryptocurrency markets by constructing and evaluating double-sorted portfolios based on 40 different characteristics. Using a dataset of over 500 major coins and tokens from 2017 to 2023, we identify numerous significant interactions. The most pronounced effects arise from the interplay of liquidity, risk, and past return measures. An out-of-sample long-short strategy that selects the top and bottom interactions achieves a Sharpe ratio exceeding 1. However, network graph analysis and additional tests reveal that low liquidity, which raises transaction costs, can dampen trading activity and contribute to the persistence of these anomalies.
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Keywords
cryptocurrency markets  return predictability  cross-section of returns  interactions  anomalies
Citation
Mercik, A., Będowska-Sójka, B., Karim, S., & Zaremba, A. (2025). Cross-sectional interactions in cryptocurrency returns. International Review of Financial Analysis, 97, 103809. https://doi.org/10.1016/j.irfa.2024.103809
URI
https://open.icm.edu.pl/handle/123456789/25545
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