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Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market
International Review of Financial Analysis, Volume: 84, Start page: 102419
Swansea University Author: Rongxin Chen
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© 2022 The Authors. Published by Elsevier Inc. Distributed under the terms of a Creative Commons Attribution 4.0 International License (CC BY 4.0).
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DOI (Published version): 10.1016/j.irfa.2022.102419
Abstract
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 asse...
Published in: | International Review of Financial Analysis |
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ISSN: | 1057-5219 1873-8079 |
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Elsevier BV
2022
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URI: | https://cronfa.swan.ac.uk/Record/cronfa64716 |
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v2 64716 2023-10-11 Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market 594e1b777174ec7a0ddafd29e99f1f4c Rongxin Chen Rongxin Chen true false 2023-10-11 BAF 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 “salient thinkers” 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. Journal Article International Review of Financial Analysis 84 102419 Elsevier BV 1057-5219 1873-8079 Salience theory, Cryptocurrency, Cross-section of returns, Behavioural biases, Limits to arbitrage 30 11 2022 2022-11-30 10.1016/j.irfa.2022.102419 http://dx.doi.org/10.1016/j.irfa.2022.102419 COLLEGE NANME Accounting and Finance COLLEGE CODE BAF Swansea University 2023-11-27T16:06:13.7065290 2023-10-11T14:42:42.5491818 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Rongxin Chen 1 Gabriele M. Lepori 2 Chung-Ching Tai 3 Ming-Chien Sung 4 64716__29122__ff058ea9303e484eb47abc8e6521a38f.pdf 64716.VOR.pdf 2023-11-27T16:04:18.9909519 Output 1299886 application/pdf Version of Record true © 2022 The Authors. Published by Elsevier Inc. Distributed under the terms of a Creative Commons Attribution 4.0 International License (CC BY 4.0). true eng https://creativecommons.org/licenses/by/4.0/ |
title |
Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market |
spellingShingle |
Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market Rongxin Chen |
title_short |
Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market |
title_full |
Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market |
title_fullStr |
Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market |
title_full_unstemmed |
Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market |
title_sort |
Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market |
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594e1b777174ec7a0ddafd29e99f1f4c |
author_id_fullname_str_mv |
594e1b777174ec7a0ddafd29e99f1f4c_***_Rongxin Chen |
author |
Rongxin Chen |
author2 |
Rongxin Chen Gabriele M. Lepori Chung-Ching Tai Ming-Chien Sung |
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Journal article |
container_title |
International Review of Financial Analysis |
container_volume |
84 |
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102419 |
publishDate |
2022 |
institution |
Swansea University |
issn |
1057-5219 1873-8079 |
doi_str_mv |
10.1016/j.irfa.2022.102419 |
publisher |
Elsevier BV |
college_str |
Faculty of Humanities and Social Sciences |
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Faculty of Humanities and Social Sciences |
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Faculty of Humanities and Social Sciences |
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School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance |
url |
http://dx.doi.org/10.1016/j.irfa.2022.102419 |
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description |
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 “salient thinkers” 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. |
published_date |
2022-11-30T16:06:14Z |
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1783733864757198848 |
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11.021648 |