Are investors rational in cryptocurrency markets? A behavioural finance perspective across emerging and developed cryptocurrency markets

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School of Business | Bachelor's thesis
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Date

2025

Department

Mikkelin kampus

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Mcode

Degree programme

(Mikkeli) Bachelor’s Program in International Business

Language

en

Pages

40 + 4

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Abstract

This paper investigates the impact of investor irrationality in cryptocurrency markets, focusing on emerging and developed markets. The study examines three key behavioural biases—overconfidence, herding, and regret aversion—using quantitative methods with secondary data. Regression analyses, including lead-lag relationship, CSAD regressions, and comparisons of regret aversion metrics such as loss ratios and realized profit/loss ratios, are used to analyse investors’ behaviour. The results reveal that overconfidence is not statistically significant across most cryptocurrencies, with Dogecoin being the only exception. Herding behaviour is more prominent in emerging markets, while developed markets exhibit herding mainly during extreme market movements. Regret aversion is significantly stronger in emerging markets, particularly in Dogecoin, where investors' reluctance to realize losses leads to underperformance. In contrast, developed market investors display less regret aversion. This study highlights the role of behavioural biases in cryptocurrency markets, helping investors and policymakers navigate market inefficiencies.

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Thesis advisor

Inci, Can

Keywords

behavioural finance, cryptocurrency, investment, overconfidence, herding, regret aversion

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https://urn.fi/URN:NBN:fi:aalto-202505113572

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[kand] Kauppakorkeakoulu / BIZ (Open Access)