Predicting cryptocurrency returns for real-world investments: A daily updated and accessible predictor

Mengxi He, Lihua Shen, Yaojie Zhang and Yi Zhang

Finance Research Letters, 2023, vol. 58, issue PA

Abstract: This paper uses a daily updated and accessible Crypto Fear and Greed Index (FG) to predict cryptocurrency returns. Investors can easily use return predictions from FG for real-world cryptocurrency investments. Empirical results show that FG has significant in-sample and out-of-sample predictive power at forecast horizons ranging from one day to one week. The predictive power of FG exists for individual cryptocurrencies and different market indices. From an investment perspective, we use different evaluation indicators and demonstrate that FG can bring substantial economic benefits to investors with different degrees of risk aversion.

Keywords: Cryptocurrency; Return prediction; Asset allocation; Economic value; Investor sentiment (search for similar items in EconPapers)
JEL-codes: C22 G11 G17 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pa:s154461232300778x

DOI: 10.1016/j.frl.2023.104406

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