Predictive power of investor sentiment for Bitcoin returns: Evidence from COVID-19 pandemic

Ahmed Bouteska, Salma Mefteh-Wali and Trung Dang

Technological Forecasting and Social Change, 2022, vol. 184, issue C

Abstract: In this paper, we examine the impact of investor sentiment on Bitcoin returns. Using a large dataset of messages discussed on social media and several financial indicators, we create a sentiment indicator based on computational text analysis and driven by the principal component analysis (PCA) method. We utilize a vector autoregressive analysis and other analytical methods to examine the sentiment index–bitcoin return nexus. Our findings reveal that the sentiment index is a strong predictor of cryptocurrency market returns in the short term. Furthermore, we confirm that during the COVID-19 pandemic, investors' sentiments significantly impacted Bitcoin returns. Our results show that the proposed sentiment index can generate excess returns for investors who utilize it as a return predictor. Our empirical findings suggest important policy implications.

Keywords: Behavioral finance; Investor sentiment; Bitcoin; Cryptocurrencies; Textual analysis for sentiment analysis (search for similar items in EconPapers)
JEL-codes: C58 G12 G14 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:184:y:2022:i:c:s0040162522005200

DOI: 10.1016/j.techfore.2022.121999

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