Investor attention in cryptocurrency markets

Abstract

Examining the effect of behavioural factors, such as investor attention, on cryptocurrency markets is particularly important since, in contrast to traditional assets, they often have little intrinsic value, and so prices cannot be explained by fundamentals. This chapter presents several of the most commonly used proxies for investor attention, incorporating both indirect and direct measures. It then briefly introduces the research regarding the effects of investor attention in the context of stock markets. This provides a framework from which it is possible to understand the mechanism by which investor attention may influence cryptocurrencies. The chapter also discusses the emerging research that specifically relates to investor attention in cryptocurrency markets, including various measures of attention and the impact on returns, liquidity, volatility, and crash risk. The substantial price gains and extreme return volatility exhibited by cryptocurrencies has grabbed the attention of a range of investors, suggesting that investor attention is a particularly important behavioral factor to consider.