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Investing during a Fintech revolution: ambiguity and return risk in cryptocurrencies

Investing during a Fintech revolution: ambiguity and return risk in cryptocurrencies
Investing during a Fintech revolution: ambiguity and return risk in cryptocurrencies
Rationally justifying Bitcoin's immense price fluctuations has remained a persistent challenge for both investors and researchers in this field. A primary reason is our potential weakness toward robustly quantifying unquantifiable risks or ambiguity in Bitcoin returns. This paper introduces a behavioral channel to argue that the degree of ambiguity aversion is a prominent source of abnormal returns from investment in Bitcoin markets. Using data over a ten-year period, we show that Bitcoin investors exhibit, on average, an increasing aversion to ambiguity. Furthermore, investors are found to earn abnormal returns only when ambiguity is low. Robustness exercises reassure on the validity of our results.
Abnormal returns, Ambiguity, Bitcoin
1042-4431
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
Zhang, Zhuang
df7b9fa8-04fd-4085-b74d-c9c1506b974e
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
Zhang, Zhuang
df7b9fa8-04fd-4085-b74d-c9c1506b974e

Luo, Di, Mishra, Tapas, Yarovaya, Larisa and Zhang, Zhuang (2021) Investing during a Fintech revolution: ambiguity and return risk in cryptocurrencies. Journal of International Financial Markets, Institutions and Money, 73, [101362]. (doi:10.1016/j.intfin.2021.101362).

Record type: Article

Abstract

Rationally justifying Bitcoin's immense price fluctuations has remained a persistent challenge for both investors and researchers in this field. A primary reason is our potential weakness toward robustly quantifying unquantifiable risks or ambiguity in Bitcoin returns. This paper introduces a behavioral channel to argue that the degree of ambiguity aversion is a prominent source of abnormal returns from investment in Bitcoin markets. Using data over a ten-year period, we show that Bitcoin investors exhibit, on average, an increasing aversion to ambiguity. Furthermore, investors are found to earn abnormal returns only when ambiguity is low. Robustness exercises reassure on the validity of our results.

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BitcoinAmibiguity (4) - Accepted Manuscript
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Accepted/In Press date: 16 May 2021
e-pub ahead of print date: 21 May 2021
Keywords: Abnormal returns, Ambiguity, Bitcoin

Identifiers

Local EPrints ID: 449395
URI: http://eprints.soton.ac.uk/id/eprint/449395
ISSN: 1042-4431
PURE UUID: 38f8b42c-c0c9-48fc-b5d5-30660a68b4a9
ORCID for Di Luo: ORCID iD orcid.org/0000-0001-7405-6347
ORCID for Tapas Mishra: ORCID iD orcid.org/0000-0002-6902-2326
ORCID for Larisa Yarovaya: ORCID iD orcid.org/0000-0002-9638-2917
ORCID for Zhuang Zhang: ORCID iD orcid.org/0000-0001-5369-3144

Catalogue record

Date deposited: 27 May 2021 16:30
Last modified: 28 Apr 2022 02:26

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