The impact of environmental factors on decisions and their implications to the digital economy, market sustainability and social and economic welfare

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The results of my PhD research provide concrete evidence of the economic importance in investigating sources of market inefficiency that can be attributable to investors' sub-optimal decisions that are linked to environmental conditions. Using advanced modelling techniques, I was able to identify a series of conditions that affected investors' rational reasoning processes that, consequently, led to substantial market inefficiencies. Importantly, I showed that the economic welfare loss attributable to such market inefficiency factors could be greatly mitigated by identifying and correcting for conditions in which individuals may make sub-optimal asset price estimations. My research aims during the PDF fellowship are: First, I will strive to consolidate my PhD research by working towards publishing the research conducted in my PhD at prestigious and high impact factor journals, attending conferences, seminars and engaging with academic and non-academic audiences to generate impact and receive feedback on my work. Second, I will aim to undertake limited additional research to extend the findings of my PhD research to a relatively unexplored market, namely the cryptocurrency market. This market has great potential in affecting the stability of digital economies, possibly impacting the social and economic welfare of millions of people. For instance, the digital economy has been fundamental in facilitating the development of technological advancements aimed at enhancing socio-economic welfare. The creation of cryptocurrencies is without a doubt a pertinent financial technology innovation that is in the forefront of shaping the contemporary economic paradigm. With current market capitalisation surpassing $200 billion, their importance to the economy is substantial. Previous studies have shown that there are important cryptocurrency pricing characteristics that can threat market stability and, consequently, lead to large economic welfare losses. In particular, the market for cryptocurrencies have been shown to be informationally inefficient (Cheah et al., 2018; Urquhart, 2016), exposing cryptocurrencies to high volatility in returns (Katsiampa, 2017) and large price bubbles and market crashes (Fry and Cheah, 2016).Unfortunately, as important as the issue outlined above might be, a review of the existing literature shows that there are no significant research attempts to understand the causes of market inefficiency observed in cryptocurrency markets. Cheah and Fry (2015) conjecture that market inefficiency in cryptocurrencies might be caused by breaches of decision-making rationality as investors may resort to heuristics and cognitive biases. Motivated by this conjecture, the additional research proposed aims to investigate the causes of market inefficiency that are related to sub-optimal pricing behaviour attributable to breaches of investor rationality that may be related to environmental conditions. This entails empirically exploring the sources of heuristics and cognitive biases that can affect efficiency of cryptocurrency markets, and the development of risk management and hedging strategies to accommodate and mitigate the identified negative economic effects of sub-optimal decision-making displayed by investors in cryptocurrency markets. The theoretical framework of the additional research proposed will be supported by literature available in behavioural finance and decision-making psychology. Advanced quantitative modelling will be used to empirically investigate the research objectives. I am confident the proposed research plan is an important step towards understanding the causes of market inefficiency in cryptocurrency markets, where the framework, model and the preliminary findings as outcomes of this additional research will constitute bases for further studies and, hence, are likely to be published in highly rated academic journals.