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Do risk preferences drive momentum in cryptocurrencies?

Author

Listed:
  • Proelss, Juliane
  • Schweizer, Denis
  • Buchwalter, Bastien

Abstract

The cryptocurrency market operates continuously, leading to frequent price fluctuations and information dissemination. This can hinder investors from reacting promptly to market changes, a phenomenon attributed to investors' limited attention. Research in traditional markets shows that the limited attention bias allows successful implementation of momentum strategies. However, past research on cryptocurrency markets finds mixed results. To resolve the puzzle, we utilize a survivorship bias-free dataset while accounting for variations in market capitalization and trading volume. This differentiation is crucial given young and tech affine retail investors' inclination toward smaller-capitalized cryptocurrencies, due to their higher risk tolerance and limited attention. More risk averse investors such as institutional investors, in contrast, focus more on top cryptocurrencies. In line with expectations, we find effective momentum strategies among larger-capitalized cryptocurrencies.

Suggested Citation

  • Proelss, Juliane & Schweizer, Denis & Buchwalter, Bastien, 2025. "Do risk preferences drive momentum in cryptocurrencies?," Finance Research Letters, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324015605
    DOI: 10.1016/j.frl.2024.106531
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    More about this item

    Keywords

    Coin; Crypto-assets; Cryptocurrency; Heterogeneous risk aversion; Investment strategy; Momentum; Token;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G40 - Financial Economics - - Behavioral Finance - - - General

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