Conditional beta and uncertainty factor in the cryptocurrency pricing model

TL;DR

This paper introduces a novel cryptocurrency pricing model incorporating conditional beta and an uncertainty factor, aiming to improve explanatory power and account for investor sentiment.

Contribution

It pioneers the integration of conditional beta and an uncertainty factor into cryptocurrency pricing models, enhancing their explanatory capabilities.

Findings

Conditional beta improves model accuracy.

Uncertainty factor significantly influences cryptocurrency prices.

Enhanced model explains more variance than previous models.

Abstract

This research is to assess cryptocurrencies with the conditional beta, compared with prior studies based on unconditional beta or fixed beta. It is a new approach to building a pricing model for cryptocurrencies. Therefore, we expect that the use of conditional beta will increase the explanatory ability of factors in previous pricing models. Besides, this research is also a pioneer in placing the uncertainty factor in the cryptocurrency pricing model. Earlier studies on cryptocurrency pricing have ignored this factor. However, it is a significant factor in the valuation of cryptocurrencies because uncertainty leads to investor sentiment and affects prices.