Yale Researchers Present Factors For Crypto Price Prediction

Yale University researchers have presented factors for crypto price prediction. The research was conducted by Yale researchers Aleh Tsyvinski and Yukun Liu, a Ph.D. student in the Department of Economics. Founded in 1701, Yale University is an American research university in New Haven, Connecticut. It is the third-oldest university of higher education in the United States and one of the nine Colonial Colleges founded before the American Revolution.

According to researchers, the risk-return tradeoff of cryptocurrencies like Bitcoin, Ripple, and Ethereum is different from those of stocks, currencies. Cryptocurrencies are unaware of most common stock market and macroeconomic factors, returns of currencies and commodities. However, researchers showed that cryptocurrency returns can be predicted by factors which are particular to cryptocurrency markets. According to them, there is a strong time-series momentum outcome and that proxies for investor attention heavily forecast cryptocurrency returns. Aleh Tsyvinski and Yukun Liu have created an index of exposures to cryptocurrencies of 354 industries in the US and 137 industries in China. The factors predicting crypto price markets are momentum and investors attention.

In the study, Tsyvinski and Liu found that, there is very strong proof of momentum at different time horizons. For Bitcoin daily returns, the current return predicts 1-day, 3-day, 5-day, and 6-day ahead returns. A one standard deviation growth in today’s return increases in daily returns by 0.33 percent, 0.17 percent, 0.39 percent, and 0.50 percent increases at the 1-day, 3-day, 5-day, and 6-day ahead returns, respectively.

They further argued that, for Bitcoin weekly returns, the current return predicts 1-week, 2-week, 3-week, and 4-week ahead returns. A one-standard-deviation increase in this week’s return increases in weekly returns of 3.16 percent, 3.66 percent, 3.49 percent, and 1.50 percent increases at the 1-week, 2-week, 3-week, and 4-week ahead returns, respectively. Specifically, the 1-week ahead weekly return is that of buying a Bitcoin at 11:59:59 UTD Sunday and selling at 11:59:59 UTD one week later.

The research paper said that,

We conclude that cryptocurrency returns have low exposures to traditional asset classes – stocks, currencies, and commodities. Our findings cast doubt on popular explanations that the behavior of cryptocurrencies is driven by its functions as a stake in the future of blockhain technology similar to stocks, as a unit of account similar to currencies, or as a store of value similar to precious metal commodities.

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