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Cryptocurrency Investor Base Changes and Idiosyncratic Volatility

Article arXiv papers · Author: Amin Izadyar et al.
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Summary

This paper examines whether changes in the investor base of cryptocurrencies are associated with changes in their idiosyncratic volatility. It uses changes in subreddit follower counts as a proxy for shifts in investor base, then relates that measure to cryptocurrency-specific volatility. The analysis also considers whether the relationship is explained by other market characteristics, including size, momentum, liquidity, and trading volume.

The paper reports that an expanding investor base is associated with a significant increase in idiosyncratic volatility, and says this result persists after accounting for those characteristics. It also reports robustness across several measures of idiosyncratic volatility. The evidence is an empirical association based on a social-media proxy; follower counts may not directly represent investors or their trading activity, and the description does not establish a causal mechanism. The findings may help motivate research on investor composition and crypto risk, but the source gives no sample details, effect sizes, or specific trading applications.

Key ideas

  • The study uses changes in subreddit followers as a proxy for changes in cryptocurrency investor base.
  • It reports that investor-base growth is associated with higher idiosyncratic volatility.
  • The reported relationship remains after considering size, momentum, liquidity, and volume.
  • The result is described as robust across multiple volatility measures.
  • Follower counts are an indirect proxy and the evidence does not establish causation.

Tags

CryptoVolatilitySentimentStatistics
Full text
# Investor base and idiosyncratic volatility of cryptocurrencies


# Investor base and idiosyncratic volatility of cryptocurrencies









This paper investigates how changes in investor base is related to idiosyncratic volatility in cryptocurrency markets. For each cryptocurrency, we set change in its subreddit followers as a proxy for the change in its investor base, and find out that the latter can significantly increase cryptocurrencies idiosyncratic volatility. This finding is not subsumed by effects of size, momentum, liquidity and volume and is robust to various measures of idiosyncratic volatility.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.