Author
Listed:
- Ali Yavuz Polat
- Ahmet Faruk Aysan
- Hasan Tekin
- Ahmet Semih Tunali
Abstract
Purpose - This study aims to investigate the effect of fear sentiment with a novel data set on Bitcoin’s (BTC) return, volatility and transaction volume. The authors divide the sample into two subperiods to capture the changing dynamics during the COVID-19 pandemic. Design/methodology/approach - The authors retrieve the novel fear sentiment data from Thomson Reuters MarketPsych Indices (TRMI). The authors denote the subperiods as pre- and post-COVID-19 considering January 13, 2020, when the first COVID-19 confirmed case was reported outside China. The authors use bivariate vector autoregressive models given below with lag-length k, to investigate the dynamics between BTC variables and fear sentiment. Findings - BTC 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 BTC 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. Practical implications - The authors are convinced that the results in this paper have more far-reaching implications for other markets regulated by the states. BTC provides a natural benchmark to understand how fear sentiment drives and impacts the markets isolated from any interventions. Hence, the results show that in the absence of regulatory frameworks, market dynamics are likely to be more volatile and the fear sentiment has more persistent impacts. The authors also highlight the importance of using micro, asset-specific sentiment measures to capture market dynamics better. Originality/value - BTC is not associated with any regulatory authority and is not produced by the governments and central banks. COVID-19 as a natural experiment provides an opportunity to explore the pure effects of market sentiment on BTC considering its decentralized and unregulated features. The paper has two main contributions. First, the authors use BTC-specific fear sentiment novel data set of TRMI instead of more general market sentiments used in the existing studies. Next, this is the first study to examine the association between fear and BTC before and after COVID-19.
Suggested Citation
Ali Yavuz Polat & Ahmet Faruk Aysan & Hasan Tekin & Ahmet Semih Tunali, 2021.
"Bitcoin-specific fear sentiment matters in the COVID-19 outbreak,"
Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 39(1), pages 98-110, September.
Handle:
RePEc:eme:sefpps:sef-02-2021-0080
DOI: 10.1108/SEF-02-2021-0080
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More about this item
Keywords
Volatility;
TRMI;
COVID-19;
Fear sentiment;
Bitcoin’s return;
Transaction volume;
C22;
G12;
G18;
G41;
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
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
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