Lottery-like preferences and the MAX effect in the cryptocurrency market

Financial Innovation

Table 10 Returns on portfolios of cryptocurrencies sorted by MAX and volatility after controlling for volatility and MAX

Decile	VOL		IVOL
Decile	VW	EW	VW	EW
Panel A. Sorted by MAX controlling for VOL and IVOL
Low MAX	0.009	0.008	0.015	0.014
2	0.014	0.012	0.018	0.016
3	0.012	0.011	0.012	0.011
4	0.011	0.010	0.013	0.011
5	0.009	0.008	0.012	0.010
6	0.013	0.012	0.013	0.013
7	0.017	0.015	0.008	0.007
8	0.014	0.012	0.008	0.007
9	0.007	0.008	0.008	0.006
High MAX	0.025	0.028	0.024	0.024
Return difference	0.016	0.020	0.009	0.010
	(5.173)***	(6.762)***	(2.720)***	(2.982)***
Alpha difference	0.013	0.018	0.006	0.007
	(2.644)***	(3.455)***	(2.128)**	(2.031)**

	VOL		IVOL
Decile	VW	EW	VW	EW
Panel B. Sorted by VOL and IVOL controlling for MAX
Low Volatility	0.016	0.019	0.014	0.016
2	0.014	0.014	0.008	0.008
3	0.010	0.011	0.013	0.011
4	0.013	0.011	0.013	0.012
5	0.007	0.006	0.007	0.006
6	0.016	0.015	0.014	0.012
7	0.011	0.010	0.011	0.009
8	0.013	0.011	0.010	0.010
9	0.007	0.006	0.008	0.008
High Volatility	0.020	0.019	0.028	0.028
Return difference	0.004	0.001	0.014	0.012
	(1.417)	(0.239)	(1.287)	(1.112)
Alpha difference	0.002	0.002	0.011	0.010
	(0.641)	(0.621)	(0.647)	(0.741)

Double-sorted, value-weighted (VW) and equal-weighted (EW) decile portfolios are formed every week from January 2014 to September 2020. In Panel A, cryptocurrencies are sorted based on the maximum daily returns after controlling for volatility (VOL and IVOL). In Panel B, cryptocurrencies are sorted based on the volatility (VOL and IVOL) after controlling for the maximum daily returns. VOL refers to Garman-Klass volatility and IVOL refers to the idiosyncratic volatility. Decile 1 (10) is the portfolio of cryptocurrencies with the lowest (highest) maximum daily return over the previous month. Table presents the value-weighted (VW) and equal-weighted (EW) average weekly returns. The bottom two rows report the differences in weekly returns and the differences in three-factor alphas between portfolios 10 and 1, and the corresponding t-statistics. Newey-West (1987) adjusted t-statistics are presented in parentheses
***, ** and * denote significance at 1%, 5% and 10%, respectively