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Investing during a Fintech Revolution: Ambiguity and return risk in cryptocurrencies

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  • Luo, Di
  • Mishra, Tapas
  • Yarovaya, Larisa
  • Zhang, Zhuang

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 on the validity of our results.

Suggested Citation

  • Luo, Di & Mishra, Tapas & Yarovaya, Larisa & Zhang, Zhuang, 2021. "Investing during a Fintech Revolution: Ambiguity and return risk in cryptocurrencies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:intfin:v:73:y:2021:i:c:s1042443121000810
    DOI: 10.1016/j.intfin.2021.101362
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    Keywords

    Bitcoin; Ambiguity; Abnormal returns;
    All these keywords.

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • G1 - Financial Economics - - General Financial Markets

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