Investor base and idiosyncratic volatility of cryptocurrencies

TL;DR

This study explores how shifts in the investor base, measured by subreddit followers, influence the idiosyncratic volatility of cryptocurrencies, revealing a significant relationship independent of other market factors.

Contribution

It introduces a novel proxy for investor base changes and demonstrates its significant impact on cryptocurrency volatility beyond traditional factors.

Findings

Investor base increase raises idiosyncratic volatility

Effect remains robust after controlling for size, momentum, liquidity, volume

Subreddit followers are a significant predictor of volatility

Abstract

This paper investigates how changes in investor base is related to idiosyncratic volatility in cryptocurrency markets. For each cryptocurrency, we set change in its subreddit followers as a proxy for the change in its investor base, and find out that the latter can significantly increase cryptocurrencies idiosyncratic volatility. This finding is not subsumed by effects of size, momentum, liquidity and volume and is robust to various measures of idiosyncratic volatility.