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Bitcoin-specific fear sentiment and bitcoin returns in the COVID-19 outbreak

Author

Listed:
  • Ahmet Faruk Aysan

    (HBKU - Hamad Bin Khalifa University)

  • Ali Yavuz Polat

    (AGU - Abdullah Gul University [Kayseri, Turkey])

  • Hasan Tekin
  • Ahmet Semih Tunali

Abstract

This study aims to investigate the effect of fear sentiment with a novel data set on Bitcoin's return, volatility and transaction volume. We divide the sample into two subperiods in order to capture the changing dynamics during the Covid-19 pandemic. We retrieve the novel fear sentiment data from Thomson Reuters MarketPsych Indices (TRMI). We denote the subperiods as pre-and post-COVID19 considering January 13th, 2020, when first Covid-19 confirmed case was reported outside China. We employ bivariate vector autoregressive (VAR) models given below with lag-length k, to investigate the dynamics between Bitcoin variables and fear sentiment.Bitcoin market measures have dissimilar dynamics before and after the Coronavirus outbreak. The results reveal that due to the excessive uncertainty led by the outbreak, an increase in fear sentiment negatively affects the Bitcoin returns more persistently and significantly. For the post-COVID-19 period, an increase in fear also results in more fluctuations in transaction volume while its initial and cumulative effects are both negative. Due to extreme uncertainty caused by the COVID-19 pandemic, investors may trade more aggressively in the initial phases of the shock.

Suggested Citation

  • Ahmet Faruk Aysan & Ali Yavuz Polat & Hasan Tekin & Ahmet Semih Tunali, 2021. "Bitcoin-specific fear sentiment and bitcoin returns in the COVID-19 outbreak," Working Papers hal-03354930, HAL.
    • Handle: RePEc:hal:wpaper:hal-03354930
    Note: View the original document on HAL open archive server: https://hal.science/hal-03354930
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin's return; COVID-19; fear sentiment; transaction volume; TRMI; volatility JEL Codes: C22; G12; G18; G41;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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