Cryptocurrencies: formation of returns from the CRIX index

Abstract

This paper examines the formation prices in the cryptocurrency market using the CAPM model based on OLS and Regime-Switching approaches. Following Baek & Elbeck’s argument that internal factors drove cryptocurrency returns, CAPM was built, taking the CRIX index as the market and ten cryptocurrencies as assets. The results suggest that the market risk factor can partially explain cryptocurrency returns. Moreover, the regime change estimation positively impacts the market risk determination power for cryptocurrencies.