Finance and Financial Management Commons^™

A Reexamination Of The Illiquidity Premium In Cryptocurrencies, Wyatt Fitz

All Graduate Plan B and other Reports, Spring 1920 to Spring 2023

In this study, I examine the illiquidity premium amongst the 372 most actively traded cryptocurrencies from September 2014 to May 2021. I find that the average returns on the most illiquid cryptocurrencies are larger than those on the most liquid cryptocurrencies. My results are robust to different weighting mechanisms for the market index and to various asset pricing model specifications. These results suggest that an investor might be able to go long a portfolio of illiquid cryptocurrencies while simultaneously shorting a portfolio of liquid cryptocurrencies to effectively generate a positive risk-adjusted return.