Quantile-time-frequency risk spillover between investor attention, clean, and dirty cryptocurrency returns

This study investigates the connectedness between investor attention and the returns of dirty (Bitcoin and Ethereum) and clean (Cardano and Ripple) cryptocurrencies, analyzing how this relationship evolves under different market conditions and time horizons. Employing data from January 1, 2018, to July 15, 2024, the research captures significant market events, such as the COVID-19 pandemic and the geopolitical tensions from the Russia–Ukraine War, to analyze the evolving dynamics in the cryptocurrency market. A novel investor attention proxy, based on Google Trends data, is developed to gage the collective interest in cryptocurrencies. The analysis employs a time frequency and quantile vector autoregression (QVAR) framework to explore return spillovers between dirty and clean cryptocurrencies and investor attention under different market conditions (bearish, normal, and bullish). The study reveals strong connectedness between cryptocurrencies, clean and dirty cryptocurrencies, across all market states in the short run. However, investor attention shows limited direct impact on cryptocurrency returns in the short term but gains influence in the long run, where it becomes a dominant net transmitter of shocks. The Total Connectedness Index (TCI) highlights varying degrees of interconnectedness, with heightened spillover effects during bearish market conditions. In the long run, while cryptocurrencies transition to being net receivers of shocks, investor attention increasingly drives market dynamics. Robustness checks using a cryptocurrency liquidity measure demonstrate that structural breaks in liquidity risks significantly affect the transmission of shocks across the cryptocurrency market. These findings underscore the complexity of the cryptocurrency market, where investor attention plays an increasingly critical role, particularly in times of market stress. Our findings provide valuable insights into the dynamic connectedness of investor attention and its profound impact on the connectedness among cryptocurrency returns. By highlighting the varying roles of different cryptocurrencies under distinct market conditions, our study enhances our understanding of the underlying mechanisms governing risk transmission in the cryptocurrency market.