Investing during a Fintech Revolution: Ambiguity and Return Risk in Cryptocurrencies

40 Pages Posted: 28 May 2021

See all articles by Di Luo

Di Luo

University of Southampton - Southampton Business School

Tapas Mishra

Southampton Business School, University of Southampton

Larisa Yarovaya

University of Southampton - Southampton Business School

Zhuang Zhang

University of Southampton - Southampton Business School

Date Written: May 17, 2021

Abstract

Rationally justifying Bitcoin's immense price fluctuations has remained a persistent challenge for both investors and researchers in this field. A primary reason is our potential weakness toward robustly quantifying unquantifiable risks or ambiguity in Bitcoin returns. This paper introduces a behavioral channel to argue that the degree of ambiguity aversion is a prominent source of abnormal returns from investment in Bitcoin markets. Using data over a ten-year period, we show that Bitcoin investors exhibit, on average, an increasing aversion to ambiguity. Furthermore, investors are found to earn abnormal returns only when ambiguity is low. Robustness exercises reassure the validity of our results.

Keywords: Bitcoin; Ambiguity; Abnormal returns

JEL Classification: C0; G1

Suggested Citation

Luo, Di and Mishra, Tapas and Yarovaya, Larisa and Zhang, Zhuang, Investing during a Fintech Revolution: Ambiguity and Return Risk in Cryptocurrencies (May 17, 2021). Journal of International Financial Markets, Institutions and Money, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3851629

Di Luo

University of Southampton - Southampton Business School ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Tapas Mishra (Contact Author)

Southampton Business School, University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Larisa Yarovaya

University of Southampton - Southampton Business School ( email )

Highfield
University Road
Southampton, SO17 1BJ
United Kingdom

Zhuang Zhang

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

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