Disagreement and returns: The case of cryptocurrencies

Jon A. Garfinkel, Lawrence Hsiao and Danqi Hu

Financial Management, 2025, vol. 54, issue 3, 633-672

Abstract: We present the first evidence of investor‐trading‐based disagreement's influence on cross‐sectional cryptocurrency daily returns. We interpret abnormal trading volume as investor disagreement and find evidence in support of Miller's disagreement model: when short‐sale constraints are binding, high abnormal volume (high disagreement) assets experience lower future returns. Further supporting Miller, these same conditions associate with higher contemporaneous order imbalance, and ex post decreases in both buying and selling activities, with the former exceeding the latter in magnitude. By contrast, the effect of high disagreement disappears after a coin's margin trading is activated. We conclude that price‐optimism models explain the disagreement‐returns relationship when opinion divergence is likely the dominant determinant of returns.

Date: 2025
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