Does the speculative frenzy in bitcoin spread to the stock market?

77 Pages Posted: 29 Jun 2020 Last revised: 12 Oct 2021

See all articles by Qingjie Du

Qingjie Du

Hong Kong Polytechnic University - School of Accounting and Finance

Yang Wang

Hong Kong Polytechnic University

Chishen Wei

Singapore Management University - Lee Kong Chian School of Business

K.C. John Wei

Hong Kong Polytechnic University

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting

Date Written: November 5, 2021

Abstract

We find that the speculative frenzy in bitcoin affects stock prices. Stocks that have non-fundamental return co-movement with bitcoin exhibit temporary over-valuation and subsequent return reversal that exceeds −1% per month. Instrumental variables analysis using Tether flows and authorizations supports a causal interpretation of our findings. Overall, the evidence is consistent with the rapid spread of speculative interest in high skewness strategies from the social transmission of ideas and suggests that investors may evaluate these stocks in a way that is consistent with the predictions of prospect theory.

Keywords: Cryptocurrency; social transmission bias; prospect theory

JEL Classification: G12, G14

Suggested Citation

Du, Qingjie and Wang, Yang and Wei, Chishen and Wei, Kuo-Chiang (John) and You, Haifeng, Does the speculative frenzy in bitcoin spread to the stock market? (November 5, 2021). HKUST Business School Research Paper No. 2020-005 (also appears in Emerging Finance and Financial Practices eJournal), Available at SSRN: https://ssrn.com/abstract=3617910 or http://dx.doi.org/10.2139/ssrn.3617910

Qingjie Du

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Yang Wang

Hong Kong Polytechnic University ( email )

Hong Kong

Chishen Wei

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore
Singapore

Kuo-Chiang (John) Wei (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting ( email )

Clear Water Bay
Kowloon
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
191
Abstract Views
944
rank
220,282
PlumX Metrics