What Is the Expected Return on Bitcoin? Extracting the Term Structure of Returns from Options Prices

13 Pages Posted: 5 Oct 2021

See all articles by Sean Foley

Sean Foley

Macquarie University

Simeng Li

affiliation not provided to SSRN

Hamish Malloch

The University of Sydney; Financial Research Network (FIRN)

Jiri Svec

The University of Sydney - Discipline of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2021

Abstract

We infer the forward-looking Bitcoin risk premium from options contracts. Using data from 2018 to 2020, we show that the expected excess returns for Bitcoin are time-varying and significantly higher than in equities or gold, averaging almost 80% per annum. A temporal analysis of the term structure of Bitcoin risk premia reveals an upward sloping term structure during Bitcoin bull markets and downward sloping during Bitcoin bear markets

Keywords: Bitcoin, cryptocurrency, expected return, term structure, risk premium

JEL Classification: G13

Suggested Citation

Foley, Sean and Li, Simeng and Malloch, Hamish and Svec, Jiri, What Is the Expected Return on Bitcoin? Extracting the Term Structure of Returns from Options Prices (October 1, 2021). Available at SSRN: https://ssrn.com/abstract=3934317 or http://dx.doi.org/10.2139/ssrn.3934317

Sean Foley (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia
0417702600 (Phone)

Simeng Li

affiliation not provided to SSRN

Hamish Malloch

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jiri Svec

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9036 6241 (Phone)

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