Initial Coin Offering market cycle and investor returns

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.advisor Kaustia, Markku
dc.contributor.author Kerri, Viivi
dc.date.accessioned 2019-02-10T17:01:31Z
dc.date.available 2019-02-10T17:01:31Z
dc.date.issued 2018
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/36437
dc.description.abstract Initial Coin Offering (ICO) is a novel innovative way for a company or an entrepreneur to raise capital through blockchain technology and crypto tokens. In exchange for funds, the company issues a token that can be sold on the Internet or to be used in the future to gain products or services from the issuer. One close analogue to ICO is the Initial Public Offering (IPO) of equity. Even though the market for ICOs is still immature and highly speculative, it continues to develop and has a potential to disrupt the way companies raise capital in the future. This thesis provides empirical evidence on exchange-traded ICO token returns and offering volumes, their determinants and signs of an ICO market cycle. The thesis has two main objectives. The first is to analyze post-listing returns for exchange-traded ICO tokens. The second is to understand the dynamics of ICO token returns and offering volumes, and gain understanding of factors affecting them. The sample consist of 571 exchange-traded ICO tokens with trading data from December 2013 until September 2018. The names of ICO tokens are collected by combining listings from several ICO data aggregator websites and the trading data is obtained from CoinMarketCap website. I use OLS regression to estimate the factors affecting ICO token returns and offering volume. First, I find that ICO returns are positive, on average, but exhibit high variance and upwards skewness across tokens. In fact, ICO token return skewness reminds substantially VC portfolio returns. Second, similar to IPOs, ICO tokens exhibit lead-lag relationship between first-day returns and offering volumes. Companies tend to offer ICOs after periods of high first-day returns. Furthermore, offering and listing volumes are highly autocorrelated. Interestingly, there is also statistically significant positive relation between first-day returns and subsequent proportion of low-quality ICO tokens. Therefore, it seems that when ICO market heats up, more low-quality ICO tokens are taken into market. Finally, ICO token returns are affected by market sentiment, token liquidity, and timing of the listing. Bitcoin return and transaction volume both have positive and statistically significant relation with returns across 30 days, 180 days, and 365 days holding periods. Further, the total listing volume in a given month that the ICO token is listed has a negative and statistically significant relation with returns across all holding periods indicating that ICO tokens listed during periods of high listing volumes tend to perform worse. The obtained results are meaningful for several reasons. From an academic perspective, they con-tribute to the emerged empirical research on initial coin offerings. In addition, this thesis is the first to address the dynamics of ICO market cycle and provide evidence of patterns in volume and returns. Moreover, this study reveals that, similar to IPO issuers, ICO issuers time their offerings to the periods of high investor optimism. From the practical side, the results are meaningful as well. To better understand the determinants of ICO tokens returns and market dynamics is not only important for an issuer but also to for other market participants, such as investors, policy makers, and regulators. en
dc.format.extent 70
dc.language.iso en en
dc.title Initial Coin Offering market cycle and investor returns en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.subject.keyword initial coin offering en
dc.subject.keyword cryptocurrency en
dc.subject.keyword token en
dc.subject.keyword blockchain en
dc.subject.keyword investor returns en
dc.identifier.urn URN:NBN:fi:aalto-201902101605
dc.type.ontasot Master's thesis en
dc.type.ontasot Maisterin opinnäyte fi
dc.programme Finance en
dc.location P1 I fi
local.aalto.electroniconly yes
local.aalto.openaccess no


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