Are Cryptos Different? Evidence from Retail Trading

Shimon Kogan, Igor Makarov, Marina Niessner and Antoinette Schoar

No 31317, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Trading in cryptocurrencies has grown rapidly over the last decade, primarily dominated by retail investors. Using a dataset of 200,000 retail traders from eToro, we show that they have a different model of the underlying price dynamics in cryptocurrencies relative to other assets. Retail traders in our sample are contrarian in stocks and gold, yet the same traders follow a momentum-like strategy in cryptocurrencies. Individual characteristics do not explain the differences in how people trade cryptocurrencies versus stocks, suggesting that our results are orthogonal to differences in investor composition or clientele effects. Furthermore, our findings are not explained by inattention, differences in fees, or preference for lotterylike stocks. We conjecture that retail investors hold a model of cryptocurrency prices, where price changes imply a change in the likelihood of future widespread adoption, which in turn pushes asset prices further in the same direction.

JEL-codes: G12 G14 G41 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-fdg, nep-fmk, nep-mon, nep-mst and nep-pay
Note: CF
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Citations: View citations in EconPapers (2)

Published as Shimon Kogan & Igor Makarov & Marina Niessner & Antoinette Schoar, 2024. "Are cryptos different? Evidence from retail trading," Journal of Financial Economics, vol 159.

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