Salience Theory and Cryptocurrency Returns

77 Pages Posted: 15 Dec 2021 Last revised: 30 Nov 2023

See all articles by Charlie X. Cai

Charlie X. Cai

University of Liverpool Management School

Ran Zhao

San Diego State University

Date Written: November 3, 2023


The salience theory of choice under risk shows that investor behavior drives cross-sectional cryptocurrency returns. Investors place too much weight on salient payouts, causing overvaluation of cryptocurrencies with upward salience returns and undervaluation of those with downward salience returns, leading to negative expected returns for the former and positive expected returns for the latter. The salience effect in the cryptocurrency market is more pronounced than in equity markets, making it a significant risk factor for explaining other cross-sectional returns in the cryptocurrency market. Unlike other documented return predictors, the salience theory uniquely contributes to understanding the cryptocurrency market.

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Keywords: Salience Theory, Asset Pricing, Behavioral Finance, Cryptocurrency, Portfolio Choice

JEL Classification: G10, G11, G13, G40, G41

Suggested Citation

Cai, Charlie Xiaowu and Zhao, Ran, Salience Theory and Cryptocurrency Returns (November 3, 2023). Journal of Banking and Finance, Forthcoming, Available at SSRN: or

Charlie Xiaowu Cai

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

Ran Zhao (Contact Author)

San Diego State University ( email )

5500 Campanile Dr
San Diego, CA 92182
United States

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