Investor Behavior and Cryptocurrency Market Bubbles during the COVID-19 Pandemic

E. Mnif, B. Salhi, K. Mouakhar and A. Jarboui
Additional contact information
E. Mnif: Université de Sfax - University of Sfax
B. Salhi: Majmaah University
K. Mouakhar: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
A. Jarboui: Université de Sfax - University of Sfax

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Abstract: Purpose: Cryptocurrencies lack fundamental values and are often subject to behavioral bias leading to market bubbles. This study aims to investigate the contribution of the coronavirus pandemic to the creation of market bubbles. Design/methodology/approach: This study identifies four major cryptocurrency market bubbles by using the Phillips et~al. (2016) (hereafter PSY) test. Subsequently, the co-movements of the coronavirus proxies with PSY measurement using the wavelet approach were studied. Findings: Short-lived bubbles are detected at the beginning of the studied period, and more extended bubble periods are identified at the end. Besides, the empirical results show evidence of significant negative co-movement between each pandemic proxy and each cryptocurrency bubble measurement. Research limitations/implications: Given the complex financial dynamics of the cryptocurrency markets due to some behavioral biases in some circumstances, investors can benefit from the date stamping of the bubbles bursting to make the best trading positions. In the same way, governments could support the healthy development of cryptocurrencies by preventing bubbles during such pandemics. Originality/value: The financial bubble is commonly attributed to a change in investor behavior. Because traders and investors think they can resell the asset at a higher price in the future. This study explored the contribution of the COVID-19 pandemic in the creation of these bubbles by date stamping their occurrence and explosive periods. To the best of the authors' knowledge, this study is the first attempt that explores the contribution of the COVID-19 pandemic to the creation of bubbles caused by a change in the investors' behavior. © 2022, Emerald Publishing Limited.

Keywords: Continuous wavelet; COVID-19; Cryptocurrency; Investor behavior; Market bubbles; Wavelet coherence (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

Published in Review of Behavioural Finance, 2022, 14 (4), pp.491-507. ⟨10.1108/RBF-09-2021-0190⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04452853

DOI: 10.1108/RBF-09-2021-0190

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