Do People Gamble or Invest in the Cryptocurrency Market? Transactional-Level Evidence from Thailand

Voraprapa Nakavachara, Roongkiat Ratanabanchuen, Kanis Saengchote, Thitiphong Amonthumniyom, Pongsathon Parinyavuttichai and Polpatt Vinaibodee

No 206, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: Should cryptocurrencies be viewed as a gambling tool or a risky investment instrument? While their unpredictable returns resemble gambling, recent studies show their prices having a timevarying correlation with traditional risky assets like the S&P 500. Many institutional investors have, thus, included cryptocurrencies in their portfolios for diversification. This paper examines the behavior of cryptocurrency market participants and investigates whether they behave like gamblers or investors. Literature shows that gamblers often engage in loss-chasing behavior, escalating risk-taking after losses that may go on indefinitely. In contrast, investors typically exhibit risk aversion after losses, though some might increase risk-taking after “paper losses,†a phenomenon called the “realization effect.†Our study found high-risk individuals exhibit gambling-like behavior, chasing both realized and paper losses. In contrast, we found limited evidence that low-risk individuals engage in risk aversion and realization effect, similar to investors. These insights are crucial for policymakers, as loss-chasing can lead to the siutation where people taking on more risk than they can afford, potentially resulting in bankruptcy.

Keywords: Cryptocurrency; Realization Effect; Loss-Chasing; Behavioral Finance (search for similar items in EconPapers)
JEL-codes: D81 G11 G41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2023-04, Revised 2024-02
New Economics Papers: this item is included in nep-fmk, nep-pay, nep-rmg and nep-upt
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Citations: View citations in EconPapers (1)

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