Role of hedging on crypto returns predictability: A new habit-based explanation

Kwamie Dunbar and Johnson Owusu-Amoako

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: We evaluate the ability of risk-averse commercial traders’ net position in futures to predict changes in cryptocurrency returns, which can be useful to cryptocurrency-market-specific measures developed in the behavioral finance literature. Notably, we show that the hedging factor has a statistically significant and economically important effect on the predictability of crypto returns via its moderating effects on the risk-aversion and uncertainty channels. Moreover, the out-of-sample evidence suggests significant return predictability for the hedging factor.

Keywords: Risk aversion; Bitcoin futures; Financial market uncertainty; Hedging factor (search for similar items in EconPapers)
JEL-codes: G12 G31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003811

DOI: 10.1016/j.frl.2023.104009

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