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

Author

Listed:
  • 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.)

  • Muddassar SARFRAZ

    (5 Binjiang College, Nanjing University of Information Science and Technology, Wuxi Jiangsu, PR China. Corresponding author.)

  • Nicolae Cristian STĂNICĂ

    (National Commission for Strategy and Prognosis.)

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.

Suggested Citation

  • Muhammad MOHSIN & Sobia NASEEM & Larisa IVAȘCU & Lucian-Ionel CIOCA & Muddassar SARFRAZ & Nicolae Cristian STĂNICĂ, 2021. "Gauging the Effect of Investor Sentiment on Cryptocurrency Market: An Analysis of Bitcoin Currency," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 87-102, December.
    • Handle: RePEc:rjr:romjef:v::y:2021:i:4:p:87-102
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin returns; investor sentiment index; money flow index; Bitcoin index turnover; cryptocurrency market; financial market;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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