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Role of hedging on crypto returns predictability: A new habit-based explanation

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  • Dunbar, Kwamie
  • Owusu-Amoako, Johnson

Abstract

We evaluate the ability of risk-averse commercial traders’ net position in futures to predict changes in cryptocurrency returns, which can be useful to cryptocurrency-market-specific measures developed in the behavioral finance literature. Notably, we show that the hedging factor has a statistically significant and economically important effect on the predictability of crypto returns via its moderating effects on the risk-aversion and uncertainty channels. Moreover, the out-of-sample evidence suggests significant return predictability for the hedging factor.

Suggested Citation

  • Dunbar, Kwamie & Owusu-Amoako, Johnson, 2023. "Role of hedging on crypto returns predictability: A new habit-based explanation," Finance Research Letters, Elsevier, vol. 55(PB).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003811
    DOI: 10.1016/j.frl.2023.104009
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    More about this item

    Keywords

    Risk aversion; Bitcoin futures; Financial market uncertainty; Hedging factor;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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