Cryptocurrency Price-based Comovement

Abstract

This study shows that returns of cryptocurrencies with similar prices move together. This price-based comovement is independent of comovements caused by other cryptocurrencies’ well-known common risk factors including size, momentum, past returns, past trading volume, or market returns. The results are robust to alternative estimation methods and data frequencies. Additional analysis shows that the relationship becomes stronger during periods of high investor sentiment, exhibits a long-run reversal, and holds within a sample of memecoins. These findings support a sentiment-based explanation of return comovement.