NFT Return Behaviors

What are the return behaviors of non-fungible tokens (NFT), which employ blockchain technology to convey ownership of unique digital or physical items? In their March 2022 paper entitled “The Economics of Non-Fungible Tokens”, Nicola Borri, Yukun Liu and Aleh Tsyvinski assemble a comprehensive dataset of NFT transactions (including digital art/media and objects related to virtual worlds) and create NFT overall market and sector indexes based on a repeat sales method. They then test:

• NFT market exposure to cryptocurrency market, size, value, momentum and attention factors.
• NFT market exposure to traditional equity, commodity and currency market factors.
• NFT market return predictability based on NFT market volatility, index-to-transaction valuation ratio, volume, momentum and attention factors.
• Individual NFT return predictability based on size and momentum/reversal.

Using blockchain-validated weekly data from major NFT exchanges during January 2018 through December 2021, encompassing about 1.3 million repeat sales, they find that: (more…)