Disruption, Bitcoin, and Prospect Theory

70 Pages Posted: 29 Jun 2020

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: June 1, 2020

Abstract

We find evidence that investors categorize stocks into a new investment style based on the theme of disruption. We identify disruption style stocks by their extreme return sensitivity to Bitcoin returns during the 2010 to 2019 period. These stocks experience temporary over-valuation and subsequent return reversal that exceeds −1% per month. Additional tests indicate that this trading habitat is dominated by retail clientele. Our evidence suggests that investors evaluate these stocks in a way that is consistent with the probability weighting features of prospect theory.

Keywords: Style investing; Trading habitat; Prospect theory; Retail investors; Cryptocurrency

JEL Classification: G12, G14

Suggested Citation

Du, Qingjie and Wang, Yang and Wei, Chishen and Wei, Kuo-Chiang (John) and You, Haifeng, Disruption, Bitcoin, and Prospect Theory (June 1, 2020). 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

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