An empirical study of market risk factors for Bitcoin

ArXiv ID: 2406.19401 “View on arXiv”

Authors: Unknown

Abstract

The study examines whether fama-french equity factors can effectively explain the idiosyncratic risk and return characteristics of Bitcoin. By incorporating Fama-french factors, the explanatory power of these factors on Bitcoin’s excess returns over various moving average periods is tested through applications of several statistical methods. The analysis aims to determine if equity market factors are significant in explaining and modeling systemic risk in Bitcoin.

Keywords: Fama-French factors, idiosyncratic risk, Bitcoin, systemic risk, excess returns, Cryptocurrency

Complexity vs Empirical Score

• Math Complexity: 4.0/10
• Empirical Rigor: 7.5/10
• Quadrant: Street Traders
• Why: The paper uses standard regression analysis (OLS) and moving averages but lacks advanced mathematical derivations or novel theory. It is highly data-driven, employing extensive weekly data (2014-2024), multiple moving average periods, and detailed statistical diagnostics (R-squared, F-statistics, Jarque-Bera tests) to evaluate a classic factor model on Bitcoin.

  flowchart TD
    A["Research Goal: Can Fama-French factors<br>explain Bitcoin's idiosyncratic risk?"] --> B["Data: Bitcoin Returns<br>+ Fama-French Factor Data"]
    B --> C["Methodology: Time-Series Regressions<br>Testing Explanatory Power"]
    C --> D["Computational Process: Apply Moving Averages<br>Calculate Excess Returns"]
    D --> E["Key Findings: Equity factors show<br>limited significance in explaining<br>Bitcoin systemic risk"]
    E --> F["Outcome: Fama-French model<br>insufficient for Bitcoin risk modeling"]