Bitcoin’s Historical Risk Premium is Unexplainable Division
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Bitcoin’s Historical Risk Premium is Unexplainable Division
Investment
Management
1. Bitcoin Factor Exposures and Unexplained Premium 2. Tactical Hedge Funds’ Factor Exposures and Unexplained Premium
20.0%
15.0%
Annual Risk Premium
w
wow 6
z
|
Annual Risk Premium
BS Equity
Term
LJ @ Funding
Liquidity
© Exchange Rate
© Emerging Market
Bitcoin
~341pp
@ Factor Risk Premium
Historical Risk Premium
iti ~~ iia
SSS SS ee eee eee eee
Bitcoin
3.6%
£132.2%
1.2% 4
°
bo
x
Annual Risk Premium
° °
& a
x x
Annual Risk Premium
1.0% +
MEquity
aan mTerm
6% m Funding
Liquidity
ey Exchange Rate
0.2% + | Emerging Market
0.0% +
Tactical Trading Hedge Funds
5.0% 4
2.8pp
4.0% + ™ Factor Risk Premium
3.0% + WHistorical Risk Premium
2.0% 4
1.0% +
0.0% +
Tactical Trading Hedge Funds
2.8%
+ 3.6%
" Bitcoin’s 300%+ historical annual risk premium is idiosyncratic and cannot be explained by ISG’s multi-factor model.
= An inability to understand sources of risk and return makes one incapable of predicting when performance will reverse.
= For tactical hedge funds, half of the historical risk premium is explained by the factor model.
(1) Peter C.B. Phillips, Shu-Ping Shi and Jun Yu, “Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the S&P 500,” International Economic Review, Oct 28, 2015.
Source: Investment Strategy Group, Bloomberg.
18
HOUSE_OVERSIGHT_025681
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