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Articles by Simon Minovitsky
Could Factors Have Explained Cryptocurrency Risk?
Given the proliferation and popularity of cryptocurrencies, we test whether factors that are important in the cross section of equity returns were also important for cryptocurrencies. We created a multifactor model with seven factors and found that basic price- and market-based factors such as size, volatility, beta and momentum were important in explaining systematic risk for cryptocurrencies.
Bitcoin: Good as Gold?
The popularity and trading activity of cryptocurrencies have exploded. As of March 31, 2021, there were over 9,000 cryptocurrencies, and the combined market cap increased 10 times to over USD 1.96 trillion since March 2020. To test if cryptocurrencies would have been an effective hedge for an equity portfolio, we examined their relationship to the equity market and found the correlation averaged near zero.
Factoring in ESG
Factors help investors understand where performance of their portfolios comes from. We examined whether ESG can help explain performance, using a factor model that incorporates ESG as a factor. We found that, over the last two years, the explanatory power for ESG has increased — perhaps due to more investment by companies in sustainability-related measures, and growing awareness and greater regulatory scrutiny of ESG and sustainability.
Understanding the Industry-Momentum Factor
The industry-momentum factor reflects the tendency of stocks in “winning” industries to continue to perform well and how those from “losing” industries tend to continue to underperform, as investors may initially underreact to market news. As global equity markets responded to the COVID-19 pandemic, the factor showed positive performance. We found that a relatively small number of sub-industries that were significantly impacted drove performance during this period.
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