When influencers describe themselves as experts, post-event returns are more negative.
Written by: TechFlow
For Likes, paying attention to the orders of various KOL bloggers is an important source of obtaining wealth passwords.
So, are KOLs always victorious when calling orders, or are they just random coincidences?
For this question, different bloggers have completely different answers. A 100-fold correct call or a zero-out wrong recommendation may become a very subjective survivor bias.
Looking at the entire industry, what is the final record of KOLs leading orders?
In February, several researchers from Harvard Business School, Indiana University Business School, and Texas A&M University jointly published a paper titled “Cryptocurrency Influencers.”
The article examines the return performance related to crypto assets mentioned in approximately 36,000 tweets posted by 180 of the most prominent cryptocurrency social media influencers (KOLs) over a two-year period ending in December 2022, covering more than 1,600 tokens. currency.
Key results:
After using machine learning to classify tweets and tracking the tokens mentioned in the tweets and their subsequent price performance through a variety of statistical descriptions and tests, the key results obtained are as follows:
1. Crypto influencer tweets are initially associated with positive returns. But these tweets were followed by significant long-term negative returns, suggesting they generated little long-term investment value.
2. The above-mentioned impact of these tweets is most obvious when the following factors are present: small coins, a large number of Twitter followers, and self-proclaimed experts.
3. The paper uses machine learning methods to classify tweets and finds that the above result pattern is stronger when the tweets have more positive emotions or are related to "buy" recommendations.
data illustration
Cryptocurrency influencer tweets exhibit positive short-term return effects:
When tweeting about a certain coin, the average one-day (two-day) return rate is 1.83% (1.57%).
Cryptocurrency projects outside the top 100 by market capitalization had a return of 3.86% one day after placing an order.
The earliest earnings started to drop significantly was five days after the tweet was posted. The average return from days two to five was -1.02%, indicating that more than half of the initial gains were wiped out within five trading days.
Taking a longer-term perspective, the average cumulative returns ending 10 and 30 days after a tweet was -2.24% and -6.53%, respectively. We further document that these negative ex post returns are even more negative for low market capitalization cryptocurrencies (where information and liquidity problems are the most severe).
A rough estimate suggests that an individual investing $1,000 in a non-top 100 crypto token on the date of the tweet and holding the investment for thirty days would incur a loss of $79 (7.9%), an annualized loss of 62.8%.
So-called experts: When influencers call themselves experts, post-event returns are more negative, and when these experts have more followers, returns are worse.
Overall, the findings indicate that the average long-term investment advice provided by cryptocurrency influencers is unprofitable. You can only profit from this by exiting your position immediately after the tweet is published, but this strategy may not always be possible due to illiquidity in the market. Furthermore, this immediate selling behavior goes against the “never sell” culture in the cryptocurrency community.
think
The collective evidence in the paper suggests that investors should be cautious about following investment advice from cryptocurrency KOLs, as most gains disappear shortly after the tweets are published.
But the article's authors also acknowledge that the evidence is not yet conclusive. Crypto KOLs may simply be chasing trends or promoting tokens that will gain them the most visibility and fans, thereby benefiting them financially.
Furthermore, a more innocuous alternative explanation is that crypto influencers truly believe that crypto assets will eventually experience high levels of growth. Influencers may also only focus on recommending short-term purchases and assume investors know to sell immediately.
Still, the paper’s results are informative, as they provide clear evidence that investment advice is less likely to be useful if one holds a coin for more than a few months or even years.
The paper also suggests that regulators and the business media may prompt greater scrutiny of such practices to determine whether these activities are associated with more relevant conflicts of interest.
Appendix: Top 25 Twitter accounts mentioned in the paper (affected by the research time of the paper, the table is the ranking 2 years ago)
This article is reprinted from Shenzhen Chao TechFlow with permission
This article Research on the Impact of Crypto KOL Tweets: The short-term order calling effect is obvious, and an average order of $1,000 will result in a loss of $79 after one month. First appeared on Zombit.
