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Prospect Theory in the Cryptocurrency Market
Coufalová, Kristýna ; Kukačka, Jiří (advisor) ; Kučera, Tomáš (referee)
This thesis investigates the potential of cumulative prospect theory to ex- plain future cryptocurrencies' returns. Moreover, the study aims to determine whether the predictive power of cumulative prospect theory value persists when cumulative prospect theory value is computed by plugging the percentage form of return (for instance, 5%) instead of the decimal form (for instance, 0.05). Using a rolling sample of 200 cryptocurrencies with the highest market capitali- sation for each month from March 2017 to March 2023, we found that regardless of using returns in percentage or decimal form, the cumulative prospect theory value function produces comparative abnormal portfolio returns and confirms the hypothesis that cryptocurrencies with high (low) cumulative prospect the- ory value earn low (high) subsequent returns. JEL Classification G11, G12, G41 Keywords Prospect theory, Cumulative Prospect Theory, Cryptocurrency, Behavioural Economics Title Prospect Theory in the Cryptocurrency Market Author's e-mail 31078966@fsv.cuni.cz Supervisor's e-mail jiri.kukacka@fsv.cuni.cz
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How much are we afraid of losing? Analysis of risk aversion.
Vokounová, Tereza ; Dlouhá, Zuzana (advisor) ; Čermáková, Klára (referee)
The whole thesis is focused on exploring how individuals make decisions under conditions of risk and uncertainty. The first section describes several economic theories, regarding explanation of human actions. The study points to the fact that the method of maximization expected utility cannot explain some examples of human decisions (eg. Allais paradoxes or the four-fold pattern) and to explain these effects, it is preferable to use prospect theory or cumulative prospect theory. In the second section, also based on results from the survey, I investigate the actual risk aversion in different situations (willingness to take risk in general, car driving, financial matters, sport and leisure, career and health) based on various factors. Statistically significant factor in all situations is gender when women show greater risk aversion in comparison to men. Age is a significant factor only in the willingness to take risk in general and in car driving. While in the willingness to take risks in general is a positive relationship between age and risk aversion, in car driving the relation is exactly the opposite. Level of education influences risk aversion in three situations - at risk in general (risk aversion increases with higher education), sport (risk aversion increases with higher education) and health issues (risk aversion decreases with higher education). In the health issues are people studying or working in the construction industry more risk-averse compared to people studying or working in the field of economics/finance. In car driving are individuals studying or working in the field of law more risk-averse than students or workers in the field of economics/finance. Another important factor is whether a person is working in public or private sector. In car driving, financial matters, career and health are people working in public sector more risk-averse compared to students and to people working in the private sector. Willingness to take risk in general is influenced by average monthly income - with a rising average monthly income is also growing willingness to take risks (decreasing risk aversion). Willingness to take risk in general, financial matters and career is higher for people who invest. Sportsmen/women are generally more willing to take risk in car driving, sport and career. Entrepreneurs are more willing to risk in career.
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