Risk in Mining and Cryptocurrency Returns: Evidence from Electricity Prices

Speaker：Yang Haoxi（Associate Professor， Nankai University School of Finance）

Host：Kang Junqing, Assistant Professor, Lingnan College

Time and Date：14:30-16:30, May. 13, 2022

Venue:  Wang Daohan Conference Room，Lingnan Hall

Language: English +Chinese

Meeting Link: Tencent meeting number: 581-126-866

Abstract:

This study extends the production--based asset pricing framework into cryptocurrency markets by examining cryptocurrency miners' optimization. Under q-theory, cryptocurrency miners optimally adjust the supply of cryptocurrencies to changes in electricity prices. The first–order condition of valuation function infers cryptocurrency returns from miners’ exposure to changes in electricity prices. Our empirical analysis confirms the model implications and shows that the rolling--window exposure of cryptocurrency returns to percentage changes in electricity prices (β_M) can positively predict the cross--section of future cryptocurrency returns across major exchanges. Further evidence reveals that the predictive power of β_M is more pronounced when estimating β_M with electricity prices from mining--intensive regions. A global risk--in--mining factor can explain, across different cryptocurrency exchanges, a series of well--documented cryptocurrency anomalies including the ones regarding cryptocurrency market capitalization and momentum. 

 Profile of the speaker:

Yang Haoxi, an associate professor at the School of Finance of Nankai University. Graduated from the Italian BOCCCONI University and obtained a doctorate in finance. The main research directions include: asset pricing, macro finance, financial measurement, and financial risk management. The main research results have been published in Economic Research, Journal of Business & Economic Statistics, IMF Economic Review, Financial Management and other domestic and foreign academic journals. He presided over a National Natural Science Foundation of China and won the second prize of Tianjin Social Sciences.