Investor Sentiment and Cryptocurrency Return

PI: Dr. Fangzhou Lu, HKU

Project Abstract: 

I show that change in investor sentiment predict Bitcoin return on a daily basis. This predictor is the single most significant predictor of Bitcoin daily return, and generates a $R^2$ of 8\%. Despite the fact that there is large variation in Bitcoin price quotes around the world, this proxy for investor sentiment predicts daily return for the most liquid Bitcoin exchange. A simple long and short strategy based on this signal generates a daily alpha of 90 bps, although the transaction cost is also high enough to offset this alpha. These findings suggest that Bitcoin price react with a delay to information contained in the sentiment of institutional investors.