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The dynamics of cryptocurrency market from behavioral finance perspective

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  • Almisshal, Basma
  • Bulut, Halil İbrahim

Abstract

This study constructs a Composite Investor Sentiment Index (CIST) integrating six behavioral and market-based proxies to examine how investor sentiment influences cryptocurrency returns and volatility. Using weekly data from March 2018-July 2023, we decompose sentiment into rational and irrational components via ARDL and analyze dynamic effects through VAR and impulse responses. The first principal component explains almost 70 % of total variance. Results show that rational sentiment exerts persistent, long-run effects on returns and volatility, while irrational sentiment causes short-lived volatility spikes. The findings advance behavioral finance by demonstrating that distinguishing cognitive from emotional investor reactions enhances understanding of cryptocurrency market behavior.

Suggested Citation

  • Almisshal, Basma & Bulut, Halil İbrahim, 2026. "The dynamics of cryptocurrency market from behavioral finance perspective," Journal of Behavioral and Experimental Finance, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:beexfi:v:49:y:2026:i:c:s2214635025001078
    DOI: 10.1016/j.jbef.2025.101126
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