Risk, Return, and Sentiment in a Virtual Asset Market

40 Pages Posted: 23 Feb 2021 Last revised: 30 Jan 2024

See all articles by Maurizio Montone

Maurizio Montone

Utrecht University

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: January 30, 2024


The joint-hypothesis problem makes economic fundamentals and mispricing hard to disentangle in equity markets. In this paper, we propose a novel solution to this issue. We study a large virtual asset market where fundamentals are predetermined and publicly known, which allows us to directly identify the impact of investor behavior on price formation. We find that several well-established determinants of stock returns also operate in this market, despite the absence of systematic risk. In additional tests, we find a positive correlation between market valuations and real-life equity prices. Our results suggest that real-world stock returns include a substantial behavioral component.

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 (January 30, 2024). 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, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA

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

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