Investor attention and the pricing of cryptocurrency market
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Investor attention and the pricing of cryptocurrency market Wei Zhang1 · Pengfei Wang1
© Japan Association for Evolutionary Economics 2020
Abstract This paper examines the underlying relationship between investor attention measured by Google Trends and the top twenty cryptocurrencies from April 2013 to April 2018. We show the bi-directional Granger causality between investor attention and cryptocurrencies (i.e., return and volatility), which is supported by linear and nonlinear Granger causality tests. The quantile regression indicates that the high investor attention is always associated with the positive return. In the overall regression analysis based on the hash algorithm, the investor’s attention can significantly predict the return and return volatility. These findings show that investor attention significantly predicts cryptocurrencies, which provide implications for cryptocurrency investors. Keywords Investor attention · Cryptocurrency market · Linear and nonlinear causality · Google Trends · Hash algorithm · Quantile regression JEL Classification G12 · G14
1 Introduction Cryptocurrencies have risen dramatically in 2017, experienced a cliff-fall in early 2018, and then rebounded since April 2018. In the process, cryptocurrencies have attracted lots of attention from both government and practitioner. For example, some governments have introduced restrictions on Bitcoin (Hendrickson and Luther 2017); while, the Chicago Mercantile Exchange and the Chicago Board Options Exchange have launched Bitcoin futures. The academic community has also begun to study the pricing dynamics of Bitcoin from different perspectives (Corbet et al. 2019). Among them, the investors’ online attention is a critical angle. This * Pengfei Wang [email protected] 1
College of Management and Economics, Tianjin University, No. 92 Weijin Road, Nankai District, Tianjin 300072, China
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Evolutionary and Institutional Economics Review
is because that the generation, dissemination and transaction of cryptocurrency are inseparable from the Internet, which records the key behaviors of investors, e.g., acquiring and obtaining news and logging into the platforms for trading. Therefore, it is a natural question to ask whether there exist causal relationships between investor attention proxied by online searches and performance of cryptocurrencies, and how the investor attention affect cryptocurrencies. However, the underlying relationships between investor attention and cryptocurrency market from linear and nonlinear aspects are ignored. Following Da et al. (2011), Urquhart (2018), and Panagiotidis et al. (2018), we also utilize Google Trends as the proxy of investor attention. Unlike foreign exchange or other markets, the trading volume of cryptocurrency is mainly done by retail investors,1 who obtain information from public sources. As the largest search engine, Google, which occupies more than 70% of global market share,2 is, thus, probable to be the suitable representative of cryptocurrency investors’ on
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