Publications
Publications
- 2023
Competition and Speculation in Cryptocurrencies
By: Alex A. Wu and Justin Katz
Abstract
We examine how mutual fund managers' performance incentives generated speculative demand during the 2020-2022 cryptocurrency boom and bust. Managers with strong relative performance incentives began investing in crypto after their competitors began investing in it, consistent with a model of competitive performance hedging. In contrast, managers with personal wealth invested in the funds they manage, who had strong direct performance incentives, responded much less to their competitors' investment decisions. Our findings suggest that relative performance incentives can encourage managers to mimic their competitors instead of trading on their beliefs, which can magnify the scope of speculative demand.
Keywords
Citation
Wu, Alex A., and Justin Katz. "Competition and Speculation in Cryptocurrencies." Working Paper, April 2023.