Does investor sentiment predict bitcoin return and volatility? A quantile regression approach

Abstract

The study investigates hypotheses relating to the effect of investor sentiment on predicting bitcoin returns and volatility. Using moments quantile regression, we present robust empirical evidence for the period 2017–2021. Our findings demonstrate that investor interest and emotions are significant predictors of bitcoin returns and volatility, while VIX and Bitcointalk.org forum are the most suitable predictors for representing investor emotions and interest, respectively. The findings also indicate a nonlinear relationship between investor sentiment and bitcoin returns and volatility, with predictable power changing based on the market conditions. Thus, the study enriches existing literature by providing empirical evidence to affirm the viability of behavioral finance theories in the bitcoin market and complements investors with more information to seek profits in different market conditions.