Comparing the Performance of the Expected Returns of Cryptocurrencies Using CAPM and D-CAPM Approaches

Abstract

<jats:p>The present study compares the expected returns of cryptocurrencies using the capital asset pricing and the downside capital asset pricing models. For this purpose, fifty cryptocurrencies were studied as representative of risky assets during the five-year from 2018 to 2022 with daily frequency. Using the conditional variance test, eighteen cryptocurrencies were accepted and the rest were homogeneously rejected in the variance heterogeneity test. Among the eighteen cryptocurrencies, nine were randomly selected as the portfolio, including high-volatility, low-volatility, and medium-volatility cryptocurrencies. First, using the t-Student statistic, the total return and downside return were compared. Results showed that the capital asset pricing model and the downside risk asset pricing model can be fitted in cryptocurrencies. Using the Wald-Fisher model, we investigated the justification for selecting a more appropriate model based on downside returns. The results of the research showed that D-CAPM and CAPM show the relationship between risk and return in cryptocurrencies appropriately, and the portfolios obtained from the mentioned models show the efficiency of the two models in the cryptocurrency market. </jats:p>