Can Investor Attention Predict Cryptocurrency Returns? : On the interconnections of the cryptocurrency market
Ahtinen, Juuso (2020)
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2020120399305
https://urn.fi/URN:NBN:fi-fe2020120399305
Tiivistelmä
The purpose of this thesis is to study the predictability of cryptocurrency returns by investor
attention, the interconnections of the cryptocurrency market, and what causes attention to
cryptocurrencies. This is done by examining Bitcoin, Ethereum and Ripple which are the three
biggest cryptocurrencies by market capitalization in January 2020.
The dataset is constructed from weekly returns, weekly changes in investor attention measured
by Google trend data and weekly changes in average weekly trading volume between years 2016
and 2019. The empirical analysis is conducted by performing OLS regressions, vector
autoregressions and Granger causality tests. Additional robust tests are conducted by dividing
the sample in pre-bubble and post-bubble samples adding all of the investor attention proxies
to individual Cryptocurrency regressions.
The results suggest that the market phase for a cryptocurrency affects the predictability of
returns as the statistically significant positive relationship between investor attention
disappears in the post-bubble sample for Bitcoin and Ethereum but endures for Ripple in both
samples. This provides more evidence for the earlier findings that cryptocurrencies become
more efficient as the market matures. The interconnections of the cryptocurrency market are
shown to exist as the returns of Bitcoin drive investor attention to Ripple which is shown to be
a significant predictor for all of the three cryptocurrencies in the whole sample. The spillover
effect is shown to take time confirming earlier findings and unfolding the herding effect via
investor attention in cryptocurrencies. Additionally, investor attention is shown to be caused by
earlier returns for the cryptocurrency as well as the returns of Bitcoin. These results explain the
interconnections of cryptocurrencies, the changing market dynamics in the cryptocurrency
market, and the predictability of cryptocurrency returns by investor attention.
attention, the interconnections of the cryptocurrency market, and what causes attention to
cryptocurrencies. This is done by examining Bitcoin, Ethereum and Ripple which are the three
biggest cryptocurrencies by market capitalization in January 2020.
The dataset is constructed from weekly returns, weekly changes in investor attention measured
by Google trend data and weekly changes in average weekly trading volume between years 2016
and 2019. The empirical analysis is conducted by performing OLS regressions, vector
autoregressions and Granger causality tests. Additional robust tests are conducted by dividing
the sample in pre-bubble and post-bubble samples adding all of the investor attention proxies
to individual Cryptocurrency regressions.
The results suggest that the market phase for a cryptocurrency affects the predictability of
returns as the statistically significant positive relationship between investor attention
disappears in the post-bubble sample for Bitcoin and Ethereum but endures for Ripple in both
samples. This provides more evidence for the earlier findings that cryptocurrencies become
more efficient as the market matures. The interconnections of the cryptocurrency market are
shown to exist as the returns of Bitcoin drive investor attention to Ripple which is shown to be
a significant predictor for all of the three cryptocurrencies in the whole sample. The spillover
effect is shown to take time confirming earlier findings and unfolding the herding effect via
investor attention in cryptocurrencies. Additionally, investor attention is shown to be caused by
earlier returns for the cryptocurrency as well as the returns of Bitcoin. These results explain the
interconnections of cryptocurrencies, the changing market dynamics in the cryptocurrency
market, and the predictability of cryptocurrency returns by investor attention.