Herding and Anchoring in Cryptocurrency Markets: Investor Reaction to Fear and Uncertainty

Journal of Behavioral and Experimental Finance, Forthcoming

18 Pages Posted: 3 Feb 2020

See all articles by Constantin Gurdgiev

Constantin Gurdgiev

Monfort College of Business, University of Northern Colorado; Trinity Business School, Trinity College, Dublin

Daniel O’Loughlin

Trinity College (Dublin)

Date Written: January 1, 2020

Abstract

Cryptocurrencies have emerged as an innovative alternative investment asset class, traded in data-rich markets by globally distributed investors. Although significant attention has been devoted to their pricing properties, to-date, academic literature on behavioral drivers remains less developed. We explore the question of how price dynamics of cryptocurrencies are influenced by the interaction between behavioral factors behind investor decisions and publicly accessible data flows. We use sentiment analysis to model the effects of public sentiment toward investment markets in general, and cryptocurrencies in particular on crypto-assets’ valuations. Our results show that investor sentiment can predict the price direction of cryptocurrencies, indicating direct impact of herding and anchoring biases. We also discuss a new direction for analyzing behavioral drivers of the crypto assets based on the use of natural language AI to extract better quality data on investor sentiment.

Keywords: cryptocurrencies, blockchain, crypto-assets, behavioral finance, Bitcoin, Ripple, Ethereum, investment markets

JEL Classification: G02, G12, G14

Suggested Citation

Gurdgiev, Constantin and O’Loughlin, Daniel, Herding and Anchoring in Cryptocurrency Markets: Investor Reaction to Fear and Uncertainty (January 1, 2020). Journal of Behavioral and Experimental Finance, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3517006 or http://dx.doi.org/10.2139/ssrn.3517006

Constantin Gurdgiev (Contact Author)

Monfort College of Business, University of Northern Colorado ( email )

Kepner Hall
800 17th Street
Greeley, CO 80639
United States
80639 (Fax)

Trinity Business School, Trinity College, Dublin ( email )

Aras an Phiarsaigh
College Green
Dublin, Leinster D2
Ireland

Daniel O’Loughlin

Trinity College (Dublin) ( email )

School of Business
Trinity College, Dublin
Dublin 2, D2
Ireland

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