Decomposing Cryptocurrencies Behavioral Anomalies

Abstract

This paper decomposes the mutual influence of behavioral anomalies in cryptocurrencies pricing. The reversal, recency bias, salience theory, lottery, and anchoring anomalies have a profound economic effect on cryptocurrency returns, which is not subsumed by cryptocurrency specific characteristics. The multivariate anomaly decomposition indicates that salience theory and lottery preferences are omnipresent, whereas recency bias is a standalone phenomenon. The significant interaction and explanation among behavioral anomalies intensify under higher cryptocurrency policy uncertainty and equity market volatility. The commonality among the behavioral anomalies reflects the speculative nature of cryptocurrencies. Thus, caution is necessary when considering behavioral anomalies as pricing factors.

Keywords: anomaly decomposition; cryptocurrencies; behavioral anomalies; salience theory; reversal effect; lottery preferences.

JEL Classification: F30; G15; G40;