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

Journal of Behavioral and Experimental Finance, forthcoming February 2020

18 Pages Posted:

See all articles by Constantin Gurdgiev

Constantin Gurdgiev

Trinity College, Dublin; Middlebury Institute of International Studies at Monterey (MIIS)

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 February 2020. Available at SSRN: https://ssrn.com/abstract=

Constantin Gurdgiev (Contact Author)

Trinity College, Dublin ( email )

Trinity College
Dublin 2

Middlebury Institute of International Studies at Monterey (MIIS) ( email )

460 Pierce St
Monterey, CA 93940
United States

Daniel O'Loughlin

Trinity College Dublin ( email )

Ireland

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