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Herding and feedback trading in cryptocurrency markets

Author

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  • Timothy King

    (University of Kent)

  • Dimitrios Koutmos

    (Texas A&M University - Corpus Christi)

Abstract

ABSTRACT This paper examines the extent to which herding and feedback trading behaviors drive price dynamics across nine major cryptocurrencies. Using sample price data from bitcoin, ethereum, XRP, bitcoin cash, EOS, litecoin, stellar, cardano and IOTA, respectively, we document heterogeneity in the types of feedback trading strategies investors utilize across markets. Whereas some cryptocurrency markets show evidence of herding, or, ‘trend chasing’, behaviors, in other markets we show evidence of contrarian-type behaviors. These findings are important because they elucidate upon, firstly, what forces drive cryptocurrency markets and, secondly, how this type of trading behavior affects autocorrelation patters for cryptocurrencies. Finally, and from our intertemporal asset pricing model, we shed new light on the observed nature of the risk-return tradeoffs for each of our sampled cryptocurrencies.

Suggested Citation

  • Timothy King & Dimitrios Koutmos, 2021. "Herding and feedback trading in cryptocurrency markets," Annals of Operations Research, Springer, vol. 300(1), pages 79-96, May.
    • Handle: RePEc:spr:annopr:v:300:y:2021:i:1:d:10.1007_s10479-020-03874-4
    DOI: 10.1007/s10479-020-03874-4
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    18. Nikolaos A. Kyriazis, 2021. "A Survey on Volatility Fluctuations in the Decentralized Cryptocurrency Financial Assets," JRFM, MDPI, vol. 14(7), pages 1-46, June.
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    21. Ştefan Cristian Gherghina & Liliana Nicoleta Simionescu, 2023. "Exploring the asymmetric effect of COVID-19 pandemic news on the cryptocurrency market: evidence from nonlinear autoregressive distributed lag approach and frequency domain causality," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-58, December.
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    24. Tan, Xilong & Tao, Yubo, 2023. "Trend-based forecast of cryptocurrency returns," Economic Modelling, Elsevier, vol. 124(C).

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