Frequency domain causality and quantile connectedness between investor sentiment and cryptocurrency returns

Abstract

This study investigates the frequency-domain causality and quantile connectedness between online investors’ fear sentiment and cryptocurrency returns. We propose cross-quantile coherency and networks to examine the frequency-domain nonlinear interdependence. First, we find that investor fear sentiment and cryptocurrency returns exhibit bidirectional causality. Second, fear exhibits an asymmetric connectedness with cryptocurrency returns across quantiles and frequencies. Third, short-term cross-quantile connectedness is found to be more significant than long-term connectedness. These findings can help investors and policymakers make decisions regarding diversified hedging and controlling for potential risks.