Investor attention and cryptocurrency market liquidity: a double-edged sword

Shouyu Yao (), Ahmet Sensoy, Duc Khuong Nguyen and Tong Li ()
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Shouyu Yao: Tianjin University
Tong Li: Tianjin University

Annals of Operations Research, 2024, vol. 334, issue 1, No 30, 815-856

Abstract: Abstract This paper explores the double-edged sword effect of investor attention on market liquidity. Based on the analysis on 597 cryptocurrencies from 2014 to 2020, our findings show that static investor attention improves cryptocurrency market liquidity over the next three months by attracting more investors into the market and stimulating buy and sell transactions. By contrast, abnormal attention persistently and negatively affects the liquidity and leads to excessive net buying pressure in the market and a crowded buyers’ market, resulting in a sharp deterioration of liquidity. Moreover, these effects intensify during low global economic policy uncertainty periods and for cryptocurrencies with small market capitalization and low idiosyncratic volatility. Overall, our results have important implications for investors, portfolio managers, and policymakers.

Keywords: Cryptocurrency markets; Investor attention; Liquidity; Investor trading behavior (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10479-022-04915-w

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