Frequency Domain Causality and Quantile Connectedness Between Investor Sentiment and Cryptocurrency Returns

This article investigates the frequency domain causality and quantile connectedness between online investor fear sentiment and cryptocurrency returns over the period from July 2016 to July 2021. We put forwards frequency domain nonparametric Granger causality, cross-quantile coherency and networks to examine their nonlinear interdependence. Empirical results show that there is a bi-directional causality between investor fear sentiment and cryptocurrency returns. Fears exhibits a pronounced asymmetric connectedness with cryptocurrency returns across quantiles and frequencies. The high frequency cross-quantile connectedness between FS and returns is more obvious than that of low frequency. What’s more, the quantile connectedness of the cryptocurrency market first increases until it peaks at the monthly frequency and afterwards decreases as the frequency increases. Furthermore, the interdependence can capture the subtle changes of the market beyond Bitcoin. Overall, investors and policy-makers should consider the causality and interdependence when making decisions in diversified hedging and control potential risks