Risk, Return, and Sentiment in a Virtual Asset Market

53 Pages Posted: 23 Feb 2021 Last revised: 11 May 2022

See all articles by Maurizio Montone

Maurizio Montone

Utrecht University

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute

Date Written: May 11, 2022


The joint-hypothesis problem casts doubt on the results of market efficiency research. Specifically, it is hard to assess to what extent financial markets reflect economic fundamentals or mispricing. To address this issue, we study price formation in a large virtual asset market where fundamentals are predetermined and publicly known. We find that a number of well-established determinants of returns from the real world also affect asset prices in this market, despite the absence of systematic risk. The results suggest that prices in real financial markets include a substantial behavioral component, which is likely underestimated in canonical asset pricing tests.

Keywords: Asset pricing; Market efficiency; Natural experiment

JEL Classification: G14; G41; C93

Suggested Citation

Montone, Maurizio and Zwinkels, Remco C.J., Risk, Return, and Sentiment in a Virtual Asset Market (May 11, 2022). Available at SSRN: https://ssrn.com/abstract=3787339 or http://dx.doi.org/10.2139/ssrn.3787339

Maurizio Montone

Utrecht University ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC

Remco C.J. Zwinkels (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NH 1081 HV
+31205985220 (Phone)

HOME PAGE: http://https://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA

HOME PAGE: http://https://tinbergen.nl/person/1574/remco-zwinkels

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