Abstract
Ideology often shapes belief formation, which is central to asset pricing. However, the role of ideological narratives as a source of asset pricing risk remains largely unexplored. Using cryptocurrencies as a laboratory, I examine the role of two ideological narratives-anarchism and decentralization-in the cross-section of cryptocurrency returns. Leveraging social media data and large language models to measure ideology dynamics, I find that fluctuations in these two ideology dynamics are priced in the cross-section of cryptocurrency returns. A two-factor model based on ideological narratives explains the cross-section of cryptocurrency returns better than a three-factor model of crypto market, size, and momentum. Positive shocks to ideology salience are associated with a significant positive spread between more ideology-aligned and less aligned cryptocurrencies, indicating a relative increase in demand for more aligned cryptocurrencies when collective attention to ideological narratives heightens. Consistent with the view that factors proxy for state variables, ideology factors contain distinct information about future crypto market returns and user network growth. Neither investor sentiment nor attention explains the results of the ideology factors. Moreover, the role of ideological narratives extends beyond cryptocurrencies. Stocks with greater exposure to the anarchism narrative yield abnormally high returns that cannot be explained by common stock factor models. The results highlight how ideological narratives contribute to the emergence and adoption of new assets.