Gauging the Effect of Investor Sentiment on Cryptocurrency Market: An Analysis of Bitcoin Currency

Muhammad Mohsin (), Sobia Naseem (), Larisa Ivașcu (), Lucian-Ionel Cioca (), Muddassar Sarfraz and Nicolae Cristian Stănică ()
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Muhammad Mohsin: School of Business, Hunan University of Humanities, Science and Technology, Hunan, PR China.
Sobia Naseem: School of Economics and Management, Shijiazhuang Tiedao University, Shijiazhuang, Hebei, PR China.
Larisa Ivașcu: Department of Management, Faculty of Management in Production and Transportation, Politehnica University of Timisoara, Timisoara, Romania
Lucian-Ionel Cioca: Department of Industrial Engineering and Management, Faculty of Engineering, Lucian Blaga University of Sibiu, Romania.
Nicolae Cristian Stănică: National Commission for Strategy and Prognosis.

Journal for Economic Forecasting, 2021, issue 4, 87-102

Abstract: The advocates of classical finance rebuffed investors’ sentiment, but some behavioral finance researchers highlight the effects of sentiments on investments and asset pricing. Primarily this research measured the investors’ sentiments relationship with Bitcoin returns by using the market data proxy approach. We construct a sentiment index that compressed five renowned sentiment proxies based on the principal component analysis. Regression analysis is used to check the relationship between investor sentiment and Bitcoin returns. The results demonstrate that the coefficient of sentiment index behaves positively significant at the level of 5%. This study also concludes that the constructed sentiment index fits the market data proxy approach and improves Bitcoin prediction through an empirical test for its reasonability.

Keywords: Bitcoin returns; investor sentiment index; money flow index; Bitcoin index turnover; cryptocurrency market; financial market (search for similar items in EconPapers)
JEL-codes: G41 P34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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