EconPapers    
Economics at your fingertips  
 

Sentiment-Induced Bubbles in the Cryptocurrency Market

Cathy Yi-Hsuan Chen () and Christian Hafner ()
Additional contact information
Cathy Yi-Hsuan Chen: Adam Smith Business School, University of Glasgow, Glasgow G12 8QQ, UK

Journal of Risk and Financial Management, 2019, vol. 12, issue 2, 1-12

Abstract: Cryptocurrencies lack clear measures of fundamental values and are often associated with speculative bubbles. This paper introduces a new way of testing for speculative bubbles based on StockTwits sentiment, which is used as the transition variable in a smooth transition autoregression. The model allows for conditional heteroskedasticity and fat tails of the conditional distribution of the error term, and volatility may depend on the constructed sentiment index. We apply the model to the CRIX index, for which several bubble periods are identified. The detected locally explosive price dynamics, given the specified bubble regime controlled by a smooth transition function, are more akin to the notion of speculative bubble that is driven by exuberant sentiment. Furthermore, we find that volatility increases as the sentiment index decreases, which is analogous to the commonly called leverage effect.

Keywords: cryptocurrencies; speculative bubbles; sentiment; smooth transition (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.mdpi.com/1911-8074/12/2/53/pdf (application/pdf)
https://www.mdpi.com/1911-8074/12/2/53/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:12:y:2019:i:2:p:53-:d:219083

Access Statistics for this article

Journal of Risk and Financial Management is currently edited by Prof. Dr. Michael McAleer

More articles in Journal of Risk and Financial Management from MDPI, Open Access Journal
Bibliographic data for series maintained by XML Conversion Team ().

 
Page updated 2019-08-22
Handle: RePEc:gam:jjrfmx:v:12:y:2019:i:2:p:53-:d:219083