Investment Strategies: Does Professors from Yale have the Solution?

Investment Strategies

Two professors from Yale University are trying to find out when a crypto-investment is most worthwhile. For this they have taken a closer look at historical price developments of Bitcoin, Ether and XRP. According to them investors should pay particular attention to two factors.

Trade, sell, hold – or even buy ?! Every day, crypto investors sit spellbound in front of the charts full of red and green candles and play trading scenarios in their heads. With the goal to make the right decision in every situation to get the maximum profit. But the ultimate recipe for forecasting the price development of coins does not exist. Or does it?

Predicting Price Development – A Science?

Two university professors from the US elite Yale University have accepted the challenge. Together they have now released a paper in which they have given investors a possible strategy. Under the title ” Risks and Returns of Cryptocurrency “, Yukun Liu and Aleh Tsyvinski have tried to derive price developments with academic methods.

They have followed an approach that one can read the future development of the courses from past price developments. The scientists think that they have recognized a scheme. In order to be able to make statements about future price levels, they have analysed the data of the Bitcoin prices from 2011 until today. In addition, they have analysed the data of Ethereum and XRP during 2012 and 2015 to substantiate their theory.

Two factors should be important in the assessment

The paper describes two effects that should be considered while taking a decision about the trade. First, the “momentum effect”, which describes the current direction in which a coin moves. The idea behind this is that an upward movement often strengthens itself, and the price continues to move upwards. For a short-term investment, an upward trend can therefore represent a buying signal.

The second effect is called “Investor Attention Effect”. This effect simply describes the level of interest in a given cryptocurrency at a given time.

This is done through a quantitative analysis of Google searches and the number of mentions of a coin in social media channels such as Facebook or Twitter.

Rather guidelines as a guide

On closer inspection, the study does not give traders any data or timeframes on how much money should be invested in which coin. Rather, it provides investors an academic data-based tool to help them make their own decisions. So, the paper is more of an investment guideline rather than a guidebook.

 

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