The determinants of positive feedback trading behaviors in Bitcoin markets

• Published in: Finance research letters Vol. 45; p. 102120
• Main Authors: Wang, Jying-Nan, Lee, Yen-Hsien, Liu, Hung-Chun, Lee, Ming-Chih
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.03.2022
• Subjects: Bitcoin; COVID-19; EMVID; Moving average; Positive feedback trading; COVID-19; C22; Positive feedback trading; Moving average; Bitcoin; C14; EMVID; G15; G14
• ISSN: 1544-6123; 1544-6131
• DOI: 10.1016/j.frl.2021.102120

•We analyze drivers of positive feedback trading (PFT) behaviors for Bitcoin during the COVID-19 pandemic.•Infectious disease-induced market uncertainty positively contributes to PFT mentality.•Both the distance between short- and long-term moving averages of Bitcoin's trading volumes and Bitcoin prices exceeding their 21-day moving average are positively correlated with PFT behavior.•Higher left-tailed risk is accompanied by less PFT behavior. This study investigates the positive feedback trading behavior in Bitcoin markets and analyzes its potential determinants. Our results show significant evidence of positive feedback trading behaviors for Bitcoin and the infectious disease equity market volatility tracker index (EMVID) increases Bitcoin volatility. Combining rolling window estimations with regression analysis, we find that market uncertainty that is measured by EMVID, the distance between short- and long-term moving averages of Bitcoin's trading volumes, and Bitcoin prices exceeding their 21-day moving average are positively correlated with future positive feedback trading behaviors during the COVID-19 pandemic. Further, left-tailed risk contributes negatively to this behavioral anomaly.