1. Herd Instinct in the Digital Currency Markets with Baek
; presented at CUNY (Nov 22), Fordham Univ (May 23), Baruch (Oct 23), FMA DSC 2023.
We establish that the actions of influential opinion leaders in the digital currency markets and potential investors following their lead drive abnormal cryptocurrency returns. We develop a psychological and behavioral factor, named the herd behavior index, that detects the herd instinct of the investors in cryptocurrency markets and captures anomalies in cryptocurrency returns. Our finding shows that the herd behavior index can explain the variation in cryptocurrency returns. Moreover, there exists a timeseries relationship between abnormal returns and the investors’ herd instinct, and the herd behavior index consistently forecasts future digital currency returns. Finally, we find notable gains even after considering transaction costs by implementing a long/short trading strategy based on the herd behavior index.
2. Bitcoin’s Law of One Price: Exchange Rate Insights
This empirical study delves into cryptocurrency market dynamics, aligning with key exchange rate theories like the Law of One Price (LOP) and exploring the adjustment processes to LOP deviations. Our analysis reveals significant and sustained price differentials in Bitcoin across various countries, most notably the 'Kimchi premium' in South Korea compared to the US. Crucially, we find that cryptocurrency prices serve as potent explanatory variables, effectively accounting for movements in nominal exchange rates for certain currencies. By integrating these findings into the half-life model, our study not only enhances understanding of cryptocurrency behavior but also establishes the relevance of digital asset prices in elucidating exchange rate fluctuations and advancing economic forecasting methodologies.
Publication:
1. ESG Performance and Macroeconomic Risks in the Asian Emerging Market with Baek. Applied Economics Letters (2024)
2. Textual Mining, Investment Sentiment, and Bitcoin Anomalies with Baek and Kang, Journal of Investing (2025)