Bitcoin-specific fear sentiment and bitcoin returns in the COVID-19 outbreak

Ahmet Aysan, Ali Yavuz Polat (), Hasan Tekin () and Ahmet Semih Tunali ()
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Ali Yavuz Polat: AGU - Abdullah Gul University [Kayseri, Turkey]

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Abstract: This study aims to investigate the effect of fear sentiment with a novel data set on Bitcoin's return, volatility and transaction volume. We divide the sample into two subperiods in order to capture the changing dynamics during the Covid-19 pandemic. We retrieve the novel fear sentiment data from Thomson Reuters MarketPsych Indices (TRMI). We denote the subperiods as pre-and post-COVID19 considering January 13th, 2020, when first Covid-19 confirmed case was reported outside China. We employ bivariate vector autoregressive (VAR) models given below with lag-length k, to investigate the dynamics between Bitcoin variables and fear sentiment.Bitcoin market measures have dissimilar dynamics before and after the Coronavirus outbreak. The results reveal that due to the excessive uncertainty led by the outbreak, an increase in fear sentiment negatively affects the Bitcoin returns more persistently and significantly. For the post-COVID-19 period, an increase in fear also results in more fluctuations in transaction volume while its initial and cumulative effects are both negative. Due to extreme uncertainty caused by the COVID-19 pandemic, investors may trade more aggressively in the initial phases of the shock.

Keywords: Bitcoin's return; COVID-19; fear sentiment; transaction volume; TRMI; volatility JEL Codes: C22; G12; G18; G41 (search for similar items in EconPapers)
Date: 2021-09-26
New Economics Papers: this item is included in nep-cwa
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Working Paper: Bitcoin-specific fear sentiment and bitcoin returns in the COVID-19 outbreak (2021)
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