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Intertemporal asset pricing with bitcoin
#MMPMIDC7346581
Koutmos D
; Payne JE
?-/-? 2021[]; 56
(2
): 619-45
PMIDC7346581
show ga
This paper develops and tests an intertemporal regime-switching asset pricing
model characterized by heterogeneous agents that have different expectations
about the persistence and volatility of bitcoin prices. The model is estimated
using daily bitcoin price data from 2013 until 2020 whereby three types of agents
are considered: mean?variance optimizers, speculators and fundamentalists,
respectively. While mean?variance optimizers trade on the basis of conditional
first and second moments of the return distribution, speculators engage in trend
chasing and buy when prices are rising and sell when prices are declining.
Fundamentalists trade on the basis of fundamental factors that can impact the
value of bitcoin. The fractions of agents engaging in one strategy over another
shows statistically substantial variation during high and low bitcoin price
volatility regimes. Estimation results reveal the following. First, unlike in
traditional asset classes, there is evidence of mean?variance optimizers. Second,
there is evidence of speculators who engage in ?bandwagon behavior? and buy
bitcoins during price appreciations and sell bitcoins during price declines.
Finally, there is evidence of fundamentalists who trade bitcoins when fundamental
factors deviate from their long-run trends. Remarkably, these fundamentalists
exhibit contrarian-type behaviors during low price volatility regimes while
behaving more like fundamental traders during high price volatility regimes.
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