Technical Sentiment Index in Cryptocurrencies
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Fundamental Sentiment and Cryptocurrency Risk Premia
Ilias Filippou; My T. Nguyen; Ganesh Viswanath-Natraj
- Florida State University
- Washington University in St. Louis
- ?Washington University in St. Louis - John M. Olin Business School
- ?Washington University in St Louis, John M. Olin Business School
- University of Warwick
- ?Warwick Business School
Strategy in a nutshell
The study constructs cryptocurrency portfolios using technical (TSI) and fundamental (FSI) sentiment indices derived from news articles via BERT topic modeling. Cryptocurrencies are sorted into portfolios based on weekly betas to TSI or FSI, with a zero-cost long-short portfolio (HML TSI) capturing differences between high- and low-sensitivity assets. Weekly rebalancing ensures portfolios reflect evolving sentiment exposures.
Economic rationale
Sentiment extracted from news articles provides predictive power for cryptocurrency returns. High fundamental pessimism signals overvalued cryptocurrencies, while high technical pessimism increases risk. Investors demand risk premiums for holding such cryptocurrencies, making text-based sentiment factors a statistically significant driver of cross-sectional returns.