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Investor attention and cryptocurrency market liquidity: a double-edged sword

Author

Listed:
  • Shouyu Yao

    (Tianjin University)

  • Ahmet Sensoy

    (Bilkent University
    Lebanese American University)

  • Duc Khuong Nguyen

    (IPAG Business School
    Vietnam National University
    Prague University of Economics and Business)

  • Tong Li

    (Tianjin University)

Abstract

This paper explores the double-edged sword effect of investor attention on market liquidity. Based on the analysis on 597 cryptocurrencies from 2014 to 2020, our findings show that static investor attention improves cryptocurrency market liquidity over the next three months by attracting more investors into the market and stimulating buy and sell transactions. By contrast, abnormal attention persistently and negatively affects the liquidity and leads to excessive net buying pressure in the market and a crowded buyers’ market, resulting in a sharp deterioration of liquidity. Moreover, these effects intensify during low global economic policy uncertainty periods and for cryptocurrencies with small market capitalization and low idiosyncratic volatility. Overall, our results have important implications for investors, portfolio managers, and policymakers.

Suggested Citation

  • Shouyu Yao & Ahmet Sensoy & Duc Khuong Nguyen & Tong Li, 2024. "Investor attention and cryptocurrency market liquidity: a double-edged sword," Annals of Operations Research, Springer, vol. 334(1), pages 815-856, March.
    • Handle: RePEc:spr:annopr:v:334:y:2024:i:1:d:10.1007_s10479-022-04915-w
    DOI: 10.1007/s10479-022-04915-w
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    More about this item

    Keywords

    Cryptocurrency markets; Investor attention; Liquidity; Investor trading behavior;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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