Can Twitter-based economic uncertainty predict safe-haven assets under all market conditions and investment horizons?

Abstract

This paper examines the Granger causality from Twitter-based economic uncertainty (TEU) to three safe-haven assets – Bitcoin, gold, and US10 year Treasury notes. Using daily data (June 1, 2011–August 30, 2021) and causality-in-quantiles and wavelets methods, the results indicate variability in the causality between the mean and variance, as well as the market conditions. TEU Granger-causes the returns and volatility of Treasuries, the volatility but not returns of Bitcoin, and neither the volatility nor the returns of gold for the raw series, and the causality is mostly significant at low and middle quantiles for Bitcoin and Treasuries. We include other risk factors and confirm the variability in the causality. Considering the possibility of a hidden causality over various frequency domains due to investors' heterogeneous expectations and perceptions of risk, the wavelet transforms-based causality tests reveal an increase in the predictability of risk indicators under specific investment horizons and market conditions. During the pandemic, TEU strongly predicts future volatility of Treasury and Bitcoin returns, reflecting the importance of social-media posts for safe-haven pricing. These findings highlight the benefits of applying the causality-in-quantiles test to decomposed series to determine the contribution of each scale to the causality over various market conditions.