| dc.description.abstract | This study investigates the relationship between Bitcoin crash risk and investor disagreement. Utilizing the investor heterogeneity model by Hong and Stein (1999) to explain the asymmetry in the distribution of Bitcoin returns, we find that a higher level of investor disagreement increases the likelihood of a crash in the Bitcoin market. We define the crash risk as the degree of negative skewness in daily intraday returns, following Chen, Hong, and Stein (2001). Two measures of crash risk used in the analysis are the negative skewness coefficient of returns (NCSKEW) and the down-to-up volatility ratio (DUVOL). Following Huang et al. (2021), we use standardized unexplained trading volume (D_SUV) to measure the degree of investor disagreement.
Furthermore, the study finds that the higher Bitcoin crash risk on a given day leads to a lower level of investor disagreement on the following day. Hence, Bitcoin crash risk relates to next day′s level of investor disagreement, but there does not exist a contemporaneous relationship between crash risk and investor disagreement, suggesting no bi-directional contemporaneous. Finally, by dividing the sample into pre-, post-, and during-COVID 19 pandemic periods, we find that the positive relation between Bitcoin crash risk and investor disagreement holds in these three sub-sample periods. | en_US |