Fairchild, Richard J., Kinsella, James, Hinvest, Neal and He, Chusu ORCID: 0000-0002-2464-9280 (2022) Crypto Investors' Behaviour and Performance and the Dot-Com Bubble Compared: This Time it is Different? [Working Paper] (doi:https://doi.org/10.2139/ssrn.4280504)

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Abstract

Do prices and returns in the financial markets exhibit observable patterns, or are they truly ‘random walks’, as predicted by the efficient market hypothesis (EMH)? If there are patterns, the natural question becomes, why do we observe such extreme cycles of bubbles (massive over-valuations) followed by the bubble bursting, and extreme crashes (often way below fundamental values)? What is the impact of investor sentiment and emotions? Do these emotions correlate with the time path of the bubble and crash? Can an understanding of this correlation help academics and practitioners to be ‘forward-looking’, and predict the future time-path of bubbles and crashes: particularly, asking: “is a bubble forming, and when will it burst?” This could be a question relevant to the current crypto-currency market.
In this paper, we develop a seminal theoretical model, cast in an emotional finance framework, that has a first peek at relating investors’ conscious and unconscious emotions to stock and crypto market bubbles and crashes. As this is the first model of this kind, we will speculate on whether this model, besides being ex post descriptive, can become ex ante predictive. We also use Elliott Wave Theory to map investor emotions and sentiment to compare the Bitcoin bear market of 2021 and the Dot-Com crash of the early 2000’s.

Item Type:	Working Paper
Uncontrolled Keywords:	cryptocurrencies, emotional finance, market cycle, bubble, prediction
Subjects:	H Social Sciences > HB Economic Theory
Faculty / School / Research Centre / Research Group:	Faculty of Business
Last Modified:	08 May 2024 15:42
URI:	http://gala.gre.ac.uk/id/eprint/47072

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