Speculation and Lottery-Like Demand in Cryptocurrency Markets

33 Pages Posted: 20 Apr 2020 Last revised: 8 May 2020

See all articles by Klaus Grobys

Klaus Grobys

University of Vaasa; University of Jyväskyla

Juha-Pekka Junttila

Jyväskylä University School of Business and Economics; Oulu Business Scool

Date Written: March 27, 2020


This is the first paper that explores lottery-like demand in cryptocurrency markets. Since recent research provides evidence that cryptocurrency returns are rather short-memory processes in their nature, we modify Bali et al.’s (2011, 2017) MAX measure and employ a weekly forecast horizon and last week’s daily log-returns for calculating the metric for our portfolio sorts. From an econometric point of view, this study proposes statistical tests that are robust to unknown dynamic dependency structures in the cryptocurrency data. Our results show that average raw and risk adjusted return differences between cryptocurrencies in the lowest and highest MAX deciles exceed 1.50% per week. These results are robust to controls for Bitcoin risk or potential microstructure effects. Our findings are important also from a theoretical point of view because they suggest that parallel to the stock markets, similar behavioral mechanisms of underlying investor behavior are present also in new virtual currency markets.

Keywords: MAX, lottery-like demand, cryptocurrency, Financial Technology, FinTech, gambling

JEL Classification: G01, G21, G30, G32

Suggested Citation

Grobys, Klaus and Junttila, Juha-Pekka, Speculation and Lottery-Like Demand in Cryptocurrency Markets (March 27, 2020). Available at SSRN: https://ssrn.com/abstract=3551948 or http://dx.doi.org/10.2139/ssrn.3551948

Klaus Grobys (Contact Author)

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa

University of Jyväskyla ( email )


Juha-Pekka Junttila

Jyväskylä University School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
Jyväskylä, FIN-40014

Oulu Business Scool ( email )

PO Box 4600
FIN-90014 University of Oulu
+358-8-553 2916 (Phone)
+358-8-553 2906 (Fax)

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