How do emotions drive market dynamics? A tale of spillovers in cryptocurrency markets

Yingying Huang, Weizhong Liang, Kun Duan, Andrew Urquhart and Qiang Ye

Journal of International Financial Markets, Institutions and Money, 2025, vol. 103, issue C

Abstract: This paper studies emotional spillovers in cryptocurrency markets and the associated impacts on market performance. By constructing a dynamic connectedness network, we capture the emotional spillover effects among the major cryptocurrencies and their time-varying evolution. We then quantify how the emotional spillovers of cryptocurrencies drive their market performance within a joint distributional framework that gauges the heterogeneity of such a linkage under different conditions of emotions and market performance of cryptocurrencies. Our results indicate that within emotional spillovers, cryptocurrencies act as the net information receiver, while carbon-intensive (dirty) cryptocurrencies play a greater role in driving emotional spillovers than eco-friendly (clean) ones. The stock market, being controlled by the emotional system, is found to be the major net provider. From a dynamic perspective, clean cryptocurrencies are shown to have stronger emotional spillover effects than dirty cryptocurrencies prior to the COVID-19 pandemic, and the effects of both gradually weaken thereafter. The role of emotional spillovers in driving market performance is often more pronounced under extreme market conditions in cryptocurrency markets.

Keywords: Emotional spillovers; Cryptocurrencies; Market performance (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:103:y:2025:i:c:s1042443125000927

DOI: 10.1016/j.intfin.2025.102202

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