Sentiment and trading decisions in an ambiguous environment : a study on cryptocurrency traders

Bowden, James and Gemayel, Roland (2022) Sentiment and trading decisions in an ambiguous environment : a study on cryptocurrency traders. Journal of International Financial Markets, Institutions and Money, 80. 101622. ISSN 1042-4431 (

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The role of public sentiment in traders’ decision-making is potentially more pronounced in crypto-asset markets, given a lack of quantifiable financial fundamental information and historical precedent for pricing behaviour. Using a data set of over two million transactions executed on a cryptocurrency exchange, we test the extent to which sentiment conveyed within cryptocurrency communities on Reddit impacts upon the performance, deposit and withdrawal behaviour, and position exposure of cryptocurrency traders. Our evidence supports the notion that sentiment plays a role in the investment decision-making process. Traders tend to realise positive returns when sentiment is bullish. Moreover, positive changes in the level of bullishness lead to traders executing larger trades, and a higher probability of depositing and withdrawing funds. Measures such as the degree of consensus within the online crowd, readership size and contributor reputation produce less compelling results, but offer some insights into Reddit community dynamics.