[Research Seminar 2019.04.03] Complex Emotions and Bitcoin PricingSpeaker : Kyounghun Bae Hanyang University
We examine how investor emotions and Bitcoin price influence each other using high- frequency data and NLP analysis. Emotions regarding Bitcoin are extracted from an online chatting window at one of the largest cryptocurrency exchanges in Korea.
To control for global factors, we also analyze relative Bitcoin prices, Korean premium, and differences between Korean exchange and other global prices. We aggregate intraday high-frequency data at five-minute intervals from October 8, 2017 to January 23, 2018. The identified emotions predict the return and volatility of Bitcoin price (in both absolute and relative terms) five minutes ahead. The interaction between emotions additively forecasts Bitcoin price, reflecting the nature and influence of complex human emotions. The results are economically significant: simple trading strategies using the relationship between emotions and Bitcoin prices generate profits even after controlling for transaction costs. Consequently, investor emotions drive Bitcoin prices, suggesting irrational crypto-markets that rational speculators can exploit, but policy makers need to address.