Dustin Weiss, Robert Gaudiosi, Z. Ivy Zhou, Robert I. Webb
This paper examines intraday Bitcoin spot returns and trading activity around the expiration of Deribit Bitcoin options. Using data from spot exchanges and Deribit perpetual futures, we document a statistically and economically significant return reversal around expiration. The effect concentrates on days with elevated at-the-money open interest and is strongest when cumulative gamma exposure is negative, which is consistent with positive feedback trading pressure induced by option market makers hedging net short exposure. Trading activity also rises around expiry in Deribit perpetual futures and in the spot exchanges used to determine the Deribit settlement price. These intraday price effects are economically meaningful, implying annual wealth transfers of approximately USD 50 million between option writers and holders. Overall, the findings highlight the role of daily option expirations in shaping short-horizon price formation in Bitcoin markets and have implications for regulated investment products that rely on spot-market reference prices.
Cryptocurrencies have found their way into the financial market as a serious alternative in recent years. In particular, Bitcoin is increasingly coming into focus. Currently, however, little is known why people invest in cryptocurrency or not. The present study seeks to shed light on individual difference variables potentially associated with these investment decisions. This includes personality traits, knowledge, and attitudes toward the social and political environment. The effective sample comprised 603 respondents who completed an online survey. Based on the proportion of their financial portfolio invested into Bitcoin, participants were divided into three groups: Non-Bitcoiners, Bitcoin Enthusiasts, and Bitcoin Maximalists. Group comparisons and prediction models indicated that Bitcoiners differed substantially from Non-Bitcoiners in justice-related attitudes as well as in specific knowledge about this cryptocurrency. By contrast, general political attitudes or reinforcement sensitivity did not differ much, and there was hardly a difference in basic dimensions of personality and general knowledge.
Introduction: Cryptocurrency investment and trading are rapidly growing activities due to the development of applications and platforms that offer fast, continuous, and easy entry into the cryptocurrency world. To understand decision making in cryptocurrency holders, we assessed temporal discounting, that is, whether Bitcoin holders disregard rewards if they are distant in time and overvalue rewards if they are more immediate. Further, we compared performance between short-term investors (i.e., day-traders) vs. long-term investors. Methods: Using an online survey, we invited 144 Bitcoin holders to answer temporal discounting questionnaires dealing with money ("Which do you prefer, that you get right now 20 USD in cash or 100 USD in a month?") and Bitcoin ("Which do you prefer, that you get right now 0.1 or 1 Bitcoin in a month?"). Results: Analysis demonstrated no significant differences between temporal discounting for money and Bitcoin. However, and critically, higher temporal discounting for both money and Bitcoin was observed in short-term investors compared with long-term investors. In a similar vein, significant positive correlations were observed between day trading and temporal discounting for both money and Bitcoin. Discussion: These findings demonstrate how Bitcoin holders with short-term time horizons tend to prioritize immediate rewards over larger but delayed rewards. Future research can assess the neural basis of temporal discounting for cryptocurrencies.
Rongxin Chen, Gabriele M. Lepori, Chung-Ching Tai, MingâChien Sung
Research on human attention indicates that objects that stand out from their surroundings, i.e., salient objects, attract the attention of our sensory channels and receive undue weighting in the decision-making process. In the financial realm, salience theory predicts that individuals will find assets with salient upsides (downsides) appealing (unappealing). We investigate whether this theory can explain investor behaviour in the cryptocurrency market. Consistent with the theory's predictions, using a sample of 1738 cryptocurrencies, we find that cryptocurrencies that are more (less) attractive to âsalient thinkersâ earn lower (higher) future returns, which indicates that they tend to be overpriced (underpriced). On average, a one cross-sectional standard-deviation increase in the salience theory value of a cryptocurrency reduces its next-week return by 0.41%. However, the salience effect is confined to the micro-cap segment of the market, and its size is moderated by limits to arbitrage.
By William Luther. How might we reconcile the regression theorem with the emergence of bitcoin? Luther responds to Pickering's argument that the "purpose and requirements of the regression theorem" have been misinterpreted.
The notion of risk plays a central role in economics, finance, health, psychology, law and elsewhere, and is prevalent in managing challenges and resources in day-to-day life. In recent work, Duncan Pritchard (2015, 2016) has argued against the orthodox probabilistic conception of risk on which the risk of a hypothetical scenario is determined by how probable it is, and in favour of a modal conception on which the risk of a hypothetical scenario is determined by how modally close it is. In this article, we use Pritchard's discussion as a springboard for a more wide-ranging discussion of the notion of risk. We introduce three different conceptions of risk: the standard probabilistic conception, Pritchard's modal conception, and a normalcy conception that is new (though it has some precursors in the psychological literature on risk perception). Ultimately, we argue that the modal conception is ill-suited to the roles that a notion of risk is required to play and explore the prospects for a form of pluralism about risk, embracing both the probabilistic and the normalcy conceptions. We take the view that a risk judgment always implicates a body of evidence, which we refer to as the background evidence. In cases where the background evidence is not made explicit, we take it to be supplied by the context of utterance and, in typical cases, to be the evidence possessed by the one making the judgment. That is, we are inclined towards a contextualist semantics for utterances such as 3 and 4, on which their truth conditions feature an evidence parameter, the value of which is fixed by the context. The semantics of such utterances is not, however, our primary concern here. As well as making categorical risk judgments such as the above, we often make comparisons. While we may judge that the risk of a plane crash is very low, we may also judge that there is a higher risk of a car crash on the way to the airport. As well as judging that there's a high risk of food poisoning at a particular restaurant, we might also judge that there is a lower risk of food poisoning at the restaurant next door. Moreover, while we often speak about the riskiness of feared events, such as plane crashes, food poisoning, etc., we can also assess the risk of states of affairs. For instance, before drilling into the wall of a 1970s West Australian house, one might assess the risk that the wall contains asbestos, or jurors in a criminal trial, when contemplating a guilty verdict, might consider the risk that the defendant is innocent, or a mountaineer may ponder the risk that the snow conditions are unfavourable for a climb. 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Economic preferences and personality traits are fundamental explanatory factors in understanding individual decision-making. They explain the heterogeneity within human behavior and are the reason why individuals differ in their actions although the preliminaries are the same. Labor market behavior, educational choices, investment decisions as well as fertility and health outcomes are only a few examples in which inherent characteristics play a key role. These findings rely on one joint assumption: preferences and personality traits do not change across the working age. The point in time when preferences are defined and measured is thus irrelevant. However, if this assumption is violated, theoretical models and empirical studies face the threat of endogeneity biases: preferences do not only affect life's outcomes, life's outcomes may also affect preferences. Testing the exogeneity assumption is thus obligatory. Herein, the present thesis makes its contribution and presents three different studies on the stability of economic preferences and personality traits. The first study in this thesis focuses on the stability of time preferences. So far, evidence on their stability is scarce and considerably restricted by very short time frames, very small sample sizes, or both. The Dutch Household Survey enables these obstacles to be circumvented and the long-term stability of time preferences within a representative sample to be analyzed. By relying on the `consideration of future consequencesâ scale -- a behaviorally validated survey measure on time preferences -- this thesis finds that time preferences have, compared to other economic attitudes, a relatively low intra-individual stability. However, the analysis reveals that individuals' valuation of future utility neither varies with age nor changes persistently with past life experiences. Similar findings result from a replication of the analysis with the German Socio-Economic Panel and its ultra-short survey items on patience and impulsiveness. The thesis, therefore, comes to the conclusion that time preferences are stable in the long run but subjected to measurement issues. The second study focuses on the determinants of risk-taking. Using German panel data, we find that people become more risk-averse when losing work. The immediate income loss does not mediate this effect. Risk aversion also seems unrelated to the loss of non-monetary benefits of work. However, the study finds that risk aversion responds more strongly to losing work the more future income is at stake, and the effect manifests itself on the eve of job loss even when people have not yet suffered from the consequences of the event. Lower future income expectations and more uncertainty about future incomes may thus explain the effect of job loss on risk attitude. Nevertheless, the effect is not persistent. After some time, individuals turn back to their initial level of risk attitude. The last chapter of this thesis tests the stability of locus of control, a measure that depicts how much people believe in their ability to affect life outcomes. Using the German Socio-Economic Panel, we find that a job loss due to a plant closure has no long-lasting effect on locus of control. The common assumption of its stability is thus not rejected. However, during unemployment, control perception decreases significantly. The effect holds true independent from unemployment duration or socio-demographic characteristics and vanishes as soon as the unemployed find a new job. In conclusion, measurement of locus of control is affected by unemployment but not the trait itself. Using this trait as the explanatory variable can thus lead to biased estimations if this temporary deviation in measurement is not accounted for. In conclusion, the present thesis neither rejects the stability assumption nor claims that preferences or personality are perfectly stable. All measures analyzed change with time. But, interpreting this instability as proof of endogenous preferences or personality traits appears unjustified. Each of the studies proposes alternative, less controversial interpretations of instability.
This paper reports the results of an experiment that examines how incentive-based compensation contracts compare to flat-wage compensation contracts in motivating individual learning and performance. I use a multiperiod cognitive task where the accounting system generates information (feedback) that has both a contracting role and a belief-revision role. The results suggest that incentives enhance performance and the rate of improvement in performance by increasing both: (1) the amount of time participants devoted to the task, and (2) participants' analysis and use of information. Further, I find evidence that incentives improve performance only after considerable feedback and experience, which may help explain why many prior one-shot decision-making experiments show no incentive effects. Collectively, the results suggest that incentives induce individuals to work longer and smarter, thereby increasing the likelihood that they will develop and use the innovative strategies frequently required to perform well in complex judgment tasks and learning situations.