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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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