Lottery-like preferences and the MAX effect in the cryptocurrency market

Creative Commons License

Ozdamar M., Akdeniz L., Sensoy A.

Financial Innovation, cilt.7, sa.1, 2021 (SSCI) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 7 Sayı: 1
  • Basım Tarihi: 2021
  • Doi Numarası: 10.1186/s40854-021-00291-9
  • Dergi Adı: Financial Innovation
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Anahtar Kelimeler: Cross-sectional predictability, Cryptocurrencies, Lottery-like preference, MAX effect
  • TED Üniversitesi Adresli: Evet

Özet

We investigate the significance of extreme positive returns in the cross-sectional pricing of cryptocurrencies. Through portfolio-level analyses and weekly cross-sectional regressions on all cryptocurrencies in our sample period, we provide evidence for a positive and statistically significant relationship between the maximum daily return within the previous month (MAX) and the expected returns on cryptocurrencies. In particular, the univariate portfolio analysis shows that weekly average raw and risk-adjusted return differences between portfolios of cryptocurrencies with the highest and lowest MAX deciles are 3.03% and 1.99%, respectively. The results are robust with respect to the differences in size, price, momentum, short-term reversal, liquidity, volatility, skewness, and investor sentiment.