Salience Theory and the Cross--Section of Cryptocurrency Returns

Abstract

Motivated by the recent empirical evidence of the salient theory (ST) effect in the equity markets of the United States and around the world, this study investigates its importance in the fast--growing cryptocurrency markets. In contrast to the evidence in the equity markets, our results suggest a significant positive relationship between the ST measure and future cryptocurrency returns. Our finding is robust even after controlling for standard cryptocurrency return predictors and across various major cryptocurrency exchanges. Further evidence indicates that the positive association between the ST measure and future cryptocurrency returns is more pronounced during good market conditions.

Keywords: cryptocurrency, Salient Theory