Investor behavior and cryptocurrency market bubbles during the COVID-19 pandemic

Emna Mnif · Bassem Salhi · Khaireddine Mouakhar · Anis Jarboui

23 citations0/0 files storedReview of Behavioral Finance

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling COVID-19 Pandemic Impacts

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.

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References

2020Financial markets under the global pandemic of COVID-19 2020COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach 2015Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin 2020Stock markets’ reaction to COVID-19: Cases or fatalities?2017RETRACTED: Datestamping the Bitcoin and Ethereum bubbles 2020Are cryptocurrencies a safe haven for equity markets? An international perspective from the COVID-19 pandemic 2008Using wavelets to decompose the time–frequency effects of monetary policy 2020Co-movement of COVID-19 and Bitcoin: Evidence from wavelet coherence analysis

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