Huge crypto study finds high risk doesnt equal reward
![](https://cryptonewswire.org/wp-content/uploads/https://www.sydney.edu.au/content/dam/corporate/images/news-and-opinion/news/2023/november/dogecoin.jpg)
The study reveals that cryptocurrencies with the most idiosyncratic (asset-specific) risks yielded an average annualised return of minus 9.36 percent, whereas cryptocurrencies with the least idiosyncratic risks yielded an average annualised return of 80.6 percent.
For example, while Bitcoin yielded 53.5 percent over the year ending June 2023, Dogecoin underperformed the market leader with a return of minus 4.8 percent.
The research, by academics in the University of Sydney School of Economics, is among the most comprehensive studies of cryptocurrency pricing.
Published in The Journal of Empirical Finance, the paper’s key finding defies the conventional wisdom that higher risk should be rewarded with higher returns. Instead, what’s known as the low-volatility anomaly occurs, where investors are penalised for taking bets that mimic lottery tickets.
“This phenomenon has been widely observed across different sectors and global equity markets,” lead researcher Dr Simon Kwok said.
“There are several explanations for the low-volatility anomaly,” Dr Kwok said. “These include limits on leverage and shorting constraints, investors’ preference for lottery-type payoffs, and investors’ behavioural biases – they are often overconfident about their prospects of ‘winning’.