Do collective emotions drive bitcoin volatility? A triple regime-switching vector approach

Bourghelle, David; Jawadi, Fredj; Rozin, Philippe

Type de document :

Compte-rendu et recension critique d'ouvrage

DOI :

10.1016/j.jebo.2022.01.026

Titre :

Do collective emotions drive bitcoin volatility? A triple regime-switching vector approach

Auteur(s) :

Bourghelle, David [Auteur]

Lille University Management Lab - ULR 4999 [LUMEN]
Jawadi, Fredj [Auteur]

Lille University Management Lab - ULR 4999 [LUMEN]
Rozin, Philippe [Auteur]

Lille University Management Lab - ULR 4999 [LUMEN]

Titre de la revue :

Journal of Economic Behavior and Organization

Pagination :

294-306

Éditeur :

Elsevier

Date de publication :

2022-04

ISSN :

0167-2681

Mot(s)-clé(s) en anglais :

Bitcoin volatility
Bitcoin bubble
Emotions Sentiment
Regime-switching
VAR model Nonlinearity

Discipline(s) HAL :

Sciences de l'Homme et Société/Gestion et management

Résumé en anglais : [en]

In this paper, we build an empirical specification that helps to explain bitcoin volatility and to characterize phases of the bitcoin bubble using information derived from investors’ emotions and sentiment that captures ...
Lire la suite >In this paper, we build an empirical specification that helps to explain bitcoin volatility and to characterize phases of the bitcoin bubble using information derived from investors’ emotions and sentiment that captures investment intentions and investors’ aversion to risk. To this end, we investigated the bilateral relations between bitcoin volatility and in- vestor emotions between 2018 and 2021, a period characterized by significant changes in bitcoin prices as well as wide disparities in investor emotions, especially in the context of the ongoing COVID-19 pandemic. The study was based on a linear and nonlinear Vector Autoregressive (VAR) model that we applied to data related to bitcoin prices and mar- ket sentiment as expressed by the Fear and Greed index. Overall, our results evince the key role played by collective emotions in the formation and collapse of the bitcoin bub- ble. Two findings in particular stand out. First, our model shows significant time-varying lead-lag effects between bitcoin volatility and investor sentiment that come into play bi- laterally and help to characterize the dynamics of bitcoin volatility. Second, these interac- tions exhibit asymmetry and nonlinearity as the sign and size of collective emotions (resp. bitcoin volatility) vary with the regime and market state under consideration (calm state versus period of bubble formation, etc.). In other words, the power of sentiment has a time-varying effect on the market. Indeed, in the first regime (“calm state”), where bitcoin volatility is relatively low and the market shows evidence of stability, collective emotions have a negative impact on bitcoin volatility, prompting a stabilizing strength. However, in the second regime (“bubble formation”), the effect of emotions turns significantly positive as investors gradually become less fearful and more reassured, which can simultaneously increase volatility and destabilize the market. Finally, in the third regime (“bubble col- lapse”), when bitcoin reaches a high level of value and experiences impressive volatility excess, the effect of emotions again turns negative, resulting in further switching behav- ior that pushes investor action to provoke a bitcoin price correction, moving it toward a new state of stability. Our conclusion helps improve predictions of bitcoin price dynamics informed by the information provided by investor emotions.Lire moins >

Langue :

Anglais

Vulgarisation :

Non

Collections :

Lille University Management Lab (LUMEN) - ULR 4999

Source :

Harvested from HAL

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