Financial Twitter Sentiment on Bitcoin Return and High-Frequency Volatility

Xiang Gao; Weige Huang; Hua Wang

doi:10.34021/ve.2021.04.01(1)

Authors

Xiang Gao Shanghai Business School, Shanghai, China https://orcid.org/0000-0003-4914-557X
Weige Huang Zhongnan University of Economics and Law, Wuhan, China https://orcid.org/0000-0002-0615-3302
Hua Wang Shenzhen Technology University, Shenzhen, China https://orcid.org/0000-0001-5186-4165

DOI:

https://doi.org/10.34021/ve.2021.04.01(1)

Keywords:

Bitcoin, cryptocurrency, sentiment, Twitter, social media, volatility

Abstract

This paper studies how sentiment affect Bitcoin pricing by examining, at an hourly frequency, the linkage between sentiment of finance-related Twitter messages and return as well as the volatility of Bitcoin as a financial asset. On the one hand, there was calculated the return from minute-level Bitcoin exchange quotes and use of both rolling variance and high-minus-low price to proxy for Bitcoin volatility per each trading hour. On the other hand, the mood signals from tweets were extracted based on a list of positive, negative, and uncertain words according to the Loughran-McDonald finance-specific dictionary. These signals were translated by categorizing each tweet into one of three sentiments, namely, bullish, bearish, and null. Then the total number of tweets were adopted in each category over one hour and their differences as potential Bitcoin price predictors. The empirical results indicate that after controlling a list of lagged returns and volatilities, stronger bullish sentiment significantly foreshadows higher Bitcoin return and volatility over the time range of 24 hours. While bearish and neutral financial Twitter sentiments have no such consistent performance, the difference between bullish and bearish ratings can improve prediction consistency. Overall, this research results add to the growing Bitcoin literature by demonstrating that the Bitcoin pricing mechanism can be partially revealed by the momentum on sentiment in social media networks, justifying a sentimental appetite for cryptocurrency investment.

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