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Research Article

Do news headlines matter in the cryptocurrency market?

ORCID Icon &
Pages 6322-6338 | Published online: 25 Apr 2022
 

ABSTRACT

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

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed here.

Notes

1 Please refer to Table A2 in the appendix for heteroscedasticity test results. Further, Table A3 and Table A4 report the serial correlation test results and variation inflation factors.

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