The 37th Frontier Forum for Digital Technology and Finance

Abstract：

This paper analyzes the risk and return dynamics associated with cryptocurrency carry trade. A cross-sectional carry trade strategy, involving the purchase of high-interest cryptocurrencies and shorting of low-interest cryptocurrencies, yields an annualized return of 43.4% with a Sharpe ratio of 0.74. Our results show that the carry returns cannot be explained by prevailing cryptocurrency factors, including market, size, momentum, volatility, liquidity, downside risk, and platform collapse risks. Additionally, our analysis does not find any substantial connection between these returns and the fiat currency carry trade. Instead, our findings suggest that a significant portion of cryptocurrency carry trade returns can be attributed to a premium for equity market volatility risk. This study highlights the inter-asset class linkages between equity risk factors and cryptocurrency returns.

Speaker Introduction：

Lei Lu, Professor of Finance and Bryce Douglas Endowed Chair in Finance at the Asper School of Business, University of Manitoba, Canada, and Ph.D. supervisor. He graduated from McGill University in Canada in 2007 with a Ph.D. in Finance. He has taught at the School of Finance, Shanghai University of Finance and Economics (2007-2011) and the Guanghua School of Management, Peking University (2011-2016). Professor Lu's research interests include asset pricing (both theoretical and empirical), investor behavior, international finance, and Chinese financial markets. His research findings have been published in nearly 40 finance and economics journals, including Management Science, Journal of Financial and Quantitative Analysis, Journal of Corporate Finance, Journal of Financial Markets, Financial Management, Journal of Futures Markets, Journal of Economic Dynamics and Control, Economic Theory, Chinese Journal of Management Science, and Journal of Financial Research. Professor Lu has hosted research projects funded by the Social Sciences and Humanities Research Council of Canada, the General Program of the National Natural Science Foundation of China, the Pujiang Talent Plan Project of Shanghai, and the China Financial Futures Exchange. He currently serves as the Associate Editor of Accounting and Finance, China Finance Review International, Financial Review, and Journal of Management Science and Engineering.