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Predicting cryptocurrency returns for real-world investments: A daily updated and accessible predictor

Author

Listed:
  • He, Mengxi
  • Shen, Lihua
  • Zhang, Yaojie
  • Zhang, Yi

Abstract

This paper uses a daily updated and accessible Crypto Fear and Greed Index (FG) to predict cryptocurrency returns. Investors can easily use return predictions from FG for real-world cryptocurrency investments. Empirical results show that FG has significant in-sample and out-of-sample predictive power at forecast horizons ranging from one day to one week. The predictive power of FG exists for individual cryptocurrencies and different market indices. From an investment perspective, we use different evaluation indicators and demonstrate that FG can bring substantial economic benefits to investors with different degrees of risk aversion.

Suggested Citation

  • He, Mengxi & Shen, Lihua & Zhang, Yaojie & Zhang, Yi, 2023. "Predicting cryptocurrency returns for real-world investments: A daily updated and accessible predictor," Finance Research Letters, Elsevier, vol. 58(PA).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pa:s154461232300778x
    DOI: 10.1016/j.frl.2023.104406
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    More about this item

    Keywords

    Cryptocurrency; Return prediction; Asset allocation; Economic value; Investor sentiment;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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