Investor attention and cryptocurrency price crash risk: a quantile regression approach

Lee Smales

Studies in Economics and Finance, 2022, vol. 39, issue 3, 490-505

Abstract: Purpose - Motivated by the lure of cryptocurrencies for retail investors, whose concentrated holdings are particularly exposed to price crash risk, this paper aims to study the relationship between investor attention and crash risk for a range of cryptocurrencies. Design/methodology/approach - This study adopts a quantile regression approach to determine the effect of investor attention on crash risk. Crash risk is measured using the negative coefficient of skewness and down up volatility. Findings - This study finds that the connection is concentrated in the tails of the crash risk distribution. Investor attention has a positive relationship with crash risk when crash risk is low (below-median quantiles) and negative when crash risk is high (above-median). The findings are consistent for different measures of crash risk, for alternate internet searches and for a panel of large cryptocurrencies in addition to Bitcoin. This study also notes seasonality in crash risk, with higher crash risk during the June–August period and lower crash risk in the Halloween period that runs from November to April. Originality/value - The results provide insights that are not apparent in previous analyses of cryptocurrency price crash risk. The results are particularly important for retail investors, who constitute a large portion of the cryptocurrency market, as they tend to hold concentrated investments and so a price crash of a single asset may have a large bearing on their wealth.

Keywords: Cryptocurrency, Investor attention, Crash risk, Bitcoin, Google search volume, G10; G14; G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-09-2021-0371

DOI: 10.1108/SEF-09-2021-0371

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