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Do people gamble or invest in the cryptocurrency market? Transactional-level evidence from Thailand

Author

Listed:
  • Nakavachara, Voraprapa
  • Ratanabanchuen, Roongkiat
  • Saengchote, Kanis
  • Amonthumniyom, Thitiphong
  • Parinyavuttichai, Pongsathon
  • Vinaibodee, Polpatt

Abstract

Should cryptocurrencies be viewed as a gambling tool or a risky investment instrument? While their unpredictable returns resemble gambling, recent studies show their prices having a time-varying correlation with traditional risky assets like the S&P 500. Many institutional investors have, thus, included cryptocurrencies in their portfolios for diversification. This paper examines the behavior of cryptocurrency market participants and investigates whether they behave like gamblers or investors. Literature shows that gamblers often engage in loss-chasing behavior, escalating risk-taking after losses that may go on indefinitely. In contrast, investors typically exhibit risk aversion after losses, though some might increase risk-taking after “paper losses,” a phenomenon called the “realization effect.” Our study found high-risk individuals exhibit gambling-like behavior, chasing both realized and paper losses. In contrast, we found limited evidence that low-risk individuals engage in risk aversion and realization effect, similar to investors. These insights are crucial for policymakers, as loss-chasing can lead to the situation where people taking on more risk than they can afford, potentially resulting in bankruptcy.

Suggested Citation

  • Nakavachara, Voraprapa & Ratanabanchuen, Roongkiat & Saengchote, Kanis & Amonthumniyom, Thitiphong & Parinyavuttichai, Pongsathon & Vinaibodee, Polpatt, 2024. "Do people gamble or invest in the cryptocurrency market? Transactional-level evidence from Thailand," Journal of Behavioral and Experimental Finance, Elsevier, vol. 41(C).
    • Handle: RePEc:eee:beexfi:v:41:y:2024:i:c:s2214635024000108
    DOI: 10.1016/j.jbef.2024.100895
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    References listed on IDEAS

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    More about this item

    Keywords

    Cryptocurrency; Realization Effect; Loss-Chasing; Behavioral Finance;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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