Journal
APPLIED ECONOMICS
Volume 54, Issue 54, Pages 6322-6338Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/00036846.2022.2061904
Keywords
Cryptocurrency; news headlines; sentiment; Natural Language Processing; opinion mining
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This paper examines the influence of investor sentiment based on news headlines on the Cryptocurrency Market Index and individual cryptocurrency returns. The findings show that news sentiment has a significant impact on cryptocurrency returns, particularly for young, small, and volatile cryptocurrencies.
The paper examines the influence of investor sentiment based on news headlines on the Cryptocurrency Market Index and ten individual cryptocurrency returns. We capture investors' sentiment from cryptocurrency-specific news headlines. We use a lexicon-based Natural Language Processing (NLP) technique to construct a unique sentiment indicator, and the sentiment scores are generated using two financial dictionaries: Henry(2008)(HE) and Loughran and Mcdonald(2011)(LM). The findings of the study show that news sentiment has a significant impact on cryptocurrency returns. When the investors' sentiment is optimistic or bullish, the cryptocurrency market experiences herding behaviour, leading to an increase in prices. The diverse and heterogeneous nature of the various cryptocurrencies causes each individual cryptocurrency to respond differently to sentiment. Further, we see that sentiment has a more pronounced impact on young, small, and volatile cryptocurrencies. Our study is among the few studies that use cryptocurrency-specific news headlines rather than news bodies to build a news sentiment indicator. JEL codes: E49, G14, G15
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