How Do Investors Value Technology in Cryptocurrency: Evidence from Textual Analysis

58 Pages Posted: 11 May 2020 Last revised: 18 Apr 2024

See all articles by Yukun Liu

Yukun Liu

University of Rochester - Simon Business School

Jinfei Sheng

University of California, Irvine - Paul Merage School of Business

Wanyi Wang

University of California, Irvine - Paul Merage School of Business

Date Written: April 17, 2024

Abstract

This paper examines how investors evaluate new technologies from the perspective of cryptocurrencies. Employing a machine learning method, we construct a novel Tech Index from whitepapers to capture technology sophistication of cryptocurrency. While cryptocurrencies with higher Tech Indexes are more likely to enjoy early success and a high first-day listing price, they tend to earn significantly lower subsequent returns after being listed. The return reversal is stronger when market sentiment is higher. Moreover, cryptocurrencies with higher Tech Index earn lower returns after the unexpected Luna Crash and FTX scandal. Overall, these findings suggest investors overreact to cryptocurrency technology.

Keywords: Cryptocurrency, Returns, Reversal, Overreaction, Information, Textual Analysis, Technology

JEL Classification: G12, G14, G23

Suggested Citation

Liu, Yukun and Sheng, Jinfei and Wang, Wanyi, How Do Investors Value Technology in Cryptocurrency: Evidence from Textual Analysis (April 17, 2024). Available at SSRN: https://ssrn.com/abstract=3577208 or http://dx.doi.org/10.2139/ssrn.3577208

Yukun Liu

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Jinfei Sheng (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

4291 Pereira Drive
Irvine, CA 92697
United States

HOME PAGE: http://sites.google.com/site/shengjinfei/

Wanyi Wang

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA 92697-3125
United States

HOME PAGE: http://sites.google.com/view/wanyiwang

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