Skewness in the Cryptocurrency Market

Abstract

The cryptocurrency market is generally accepted in the world, and its price has soared and plummeted sharply. Meanwhile, skewness is an index reflecting the rapid rise and fall of asset prices in a short period. Studying the relationship between the skewness of cryptocurrency and its returns can help risk evaders expect bad news and provide a reference for risk enthusiasts to make investment decisions. Therefore, through univariate combination analysis, this paper groups cryptocurrency according to the skewness of the previous month before buying and holding it in the next week. Moreover, the excess return series are calculated to make statistical tests on it. Then we construct a three-factor model of cryptocurrency and adjust the return series. To enhance the robustness of the conclusion, we also use other measures of skewness such as idiosyncratic skewness to conduct a univariate combination analysis. The results show that a positive correlation between cryptocurrency skewness and its returns exists, which can be used as a reference index of the returns.