Speculative bubbles and herding in cryptocurrencies

Ozkan Haykir () and Ibrahim Yagli ()
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Ozkan Haykir: Nigde Omer Halisdemir University
Ibrahim Yagli: Nevsehir Hacı Bektas Veli University

Financial Innovation, 2022, vol. 8, issue 1, 1-33

Abstract: Abstract This study investigates speculative bubbles in the cryptocurrency market and factors affecting bubbles during the COVID-19 pandemic. Our results indicate that each cryptocurrency covered in the study presented bubbles. Moreover, we found that explosive behavior in one currency leads to explosivity in other cryptocurrencies. During the pandemic, herd behavior was evident among investors; however, this diminishes during bubbles, indicating that bubbles are not explained by herd behavior. Regarding cryptocurrency and market-specific factors, we found that Google Trends and volume are positively associated with predicting speculative bubbles in time-series and panel probit regressions. Hence, investors should exercise caution when investing in cryptocurrencies and follow both crypto currency and market-related factors to estimate bubbles. Alternative liquidity, volatility, and Google Trends measures are used for robustness analysis and yield similar results. Overall, our results suggest that bubble behavior is common in the cryptocurrency market, contradicting the efficient market hypothesis.

Keywords: Cryptocurrency; Bubbles; Co-explosivity; Herding; COVID-19 pandemic (search for similar items in EconPapers)
JEL-codes: G12 G17 G40 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (13)

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DOI: 10.1186/s40854-022-00383-0

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