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
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
July 2021
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).
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
Published date: July 2021
Additional Information:
Funding Information:
We thank Jonathan Batten (the Editor), an anonymous referee, Hisham Farag, Armin Schwienbacher, and Ganesh Viswanath-Natraj for their insightful comments and suggestions. We are grateful to conference participants at the Cryptocurrency Research Conference, UK, 2020, the SFiC conference, University of Birmingham, UK, 2021, and the 37th International Conference of the French Finance Association (AFFI), France, 2021 for their helpful comments and suggestions. Di Luo is grateful for financial support from the National Natural Science Foundation of China (Grant No.71991473 and No.71671076). All remaining errors are our own.
Funding Information:
? We thank Jonathan Batten (the Editor), an anonymous referee, Hisham Farag, Armin Schwienbacher, and Ganesh Viswanath-Natraj for their insightful comments and suggestions. We are grateful to conference participants at the Cryptocurrency Research Conference, UK, 2020, the SFiC conference, University of Birmingham, UK, 2021, and the 37th International Conference of the French Finance Association (AFFI), France, 2021 for their helpful comments and suggestions. Di Luo is grateful for financial support from the National Natural Science Foundation of China (Grant No.71991473 and No.71671076). All remaining errors are our own.
Publisher Copyright:
© 2021 Elsevier B.V.
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
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Date deposited: 27 May 2021 16:30
Last modified: 17 Mar 2024 06:35
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Di Luo
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