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Impact of Liquidity and Investors Sentiment on Herd Behavior in Cryptocurrency Market

Author

Listed:
  • Siniša Bogdan

    (Faculty of Tourism and Hospitality Management, University of Rijeka, 51000 Rijeka, Croatia)

  • Natali Brmalj

    (Faculty of Tourism and Hospitality Management, University of Rijeka, 51000 Rijeka, Croatia)

  • Elvis Mujačević

    (Faculty of Tourism and Hospitality Management, University of Rijeka, 51000 Rijeka, Croatia)

Abstract

This research addresses the impact of individual investors on the cryptocurrency market, focusing specifically on the development of herd behavior. Although the phenomenon of herd behavior has been studied extensively in the stock market, it has received limited research in the context of cryptocurrencies. This study aims to fill this research gap by examining the impact of liquidity and sentiment on herd behavior using the CSAD model, considering small, medium, and large cryptocurrencies. The results show different outcomes for cryptocurrencies of different sizes, consistently demonstrating that the herding effect is more pronounced under conditions of lower liquidity, as determined by the turnover volume and liquidity ratio of cryptocurrencies. Proxy measures such as the Twitter Hedonometer and CBOE VIX were used to measure investor sentiment and show the prevalence of herding behavior in optimistic times for all cryptocurrencies, regardless of their market capitalization. Consequently, this study provides valuable insights into the manifestation of herd behavior in the cryptocurrency market and highlights the importance of liquidity and sentiment as influencing factors. These findings improve our understanding of investor behavior and provide guidance to market participants and policymakers on how to effectively manage the risks associated with herd effects.

Suggested Citation

  • Siniša Bogdan & Natali Brmalj & Elvis Mujačević, 2023. "Impact of Liquidity and Investors Sentiment on Herd Behavior in Cryptocurrency Market," IJFS, MDPI, vol. 11(3), pages 1-17, July.
    • Handle: RePEc:gam:jijfss:v:11:y:2023:i:3:p:97-:d:1207442
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    References listed on IDEAS

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    Cited by:

    1. Mauro Aliano & Stefania Ragni, 2026. "Game-based modeling of delayed risk contagion in cryptocurrency exchanges," Annals of Operations Research, Springer, vol. 356(1), pages 277-299, January.
    2. Dostonbek Eshpulatov & Gayrat Berdiev & Andrey Artemenkov, 2025. "Modeling the Determinants of Stock Market Investment Intention and Behavior Among Studying Adults: Evidence from University Students Using PLS-SEM," IJFS, MDPI, vol. 13(3), pages 1-29, July.
    3. Barrow, Daisy, 2025. "How Does the Level of Market Liquidity Impact the Prevalence of Herding in European Equity Markets?," Warwick-Monash Economics Student Papers 92, Warwick Monash Economics Student Papers.

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