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Exploring investor behavior in Bitcoin: a study of the disposition effect

Author

Listed:
  • Jürgen E. Schatzmann

    (University of the Sunshine Coast)

  • Bernhard Haslhofer

    (Complexity Science Hub Vienna)

Abstract

Investors commonly exhibit the disposition effect—the irrational tendency to sell their winning investments and hold onto their losing ones. While this phenomenon has been observed in many traditional markets, it remains unclear whether it also applies to atypical markets like cryptoassets. This paper investigates the prevalence of the disposition effect in Bitcoin using transactions targeting cryptoasset exchanges as proxies for selling transactions. Our findings suggest that investors in Bitcoin were indeed subject to the disposition effect, with varying intensity. They also show that the disposition effect was not consistently present throughout the observation period. Its prevalence was more evident from the boom and bust year 2017 onwards, as confirmed by various technical indicators. Our study suggests irrational investor behavior is also present in atypical markets like Bitcoin.

Suggested Citation

  • Jürgen E. Schatzmann & Bernhard Haslhofer, 2023. "Exploring investor behavior in Bitcoin: a study of the disposition effect," Digital Finance, Springer, vol. 5(3), pages 581-612, December.
    • Handle: RePEc:spr:digfin:v:5:y:2023:i:3:d:10.1007_s42521-023-00086-w
    DOI: 10.1007/s42521-023-00086-w
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    Keywords

    Behavioral economics; Cryptoassets;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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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