The effect of financial literacy and positive feedback on investment behaviour in Bitcoin markets
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2020-12-07
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en
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Abstract
The welfare loss of not participating in the stock market can be sizable. For Bitcoin investments, the
relation is not so simple. There is no clear consensus in the literature, whether investors should invest
in Bitcoin. There is evidence that Bitcoin is often in bubbles, but also that it provides excellent
diversification possibilities. The problem that arises is that participants in Bitcoin markets are usually
new to investing. These new investors do not know how to diversify their portfolio well and take too
many risks when investing. The first contribution we make is showing that there is no significant
effect of financial literacy on the investment amount in Bitcoin. The literature refers to positive
feedback trading as one of the underlying reasons that Bitcoin is often in bubbles. Feedback trading is
that investors buy assets when prices rise and sell when prices drop. The second contribution we make
is showing that the amount of euro's that participants invest in Bitcoin is not significantly affected by
positive feedback. The third contribution we make is showing that there is no compound effect of
financial literacy and positive feedback on how much individuals invest in Bitcoin.
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Faculteit der Managementwetenschappen