Forecasting Cryptocurrencies Log-Returns : a LASSO-VAR and Sentiment Approach
Cryptocurrencies have become a trendy topic recently, primarily due to their disruptive potential and reports of unprecedented returns. In addition, academics increasingly acknowledge the predictive power of Social Media in many fields and, more specifically, for financial markets and economics. In this paper, we leverage the predictive power of Twitter and Reddit sentiment together with Google Trends indexes and volume to forecast the log returns of ten cryptocurrencies. Specifically, we consider Bitcoin, Ethereum, Tether, BinanceCoin, Litecoin, EnjinCoin, Horizen, Namecoin, Peercoin, and Feathercoin. We evaluate the performance of LASSO-VAR using daily data from January 2018 to January 2022. In a 30 days recursive forecast, we can retrieve the correct direction of the actual series more than 50% of the time. We compare this result with the main benchmarks, and we see a 10% improvement in Mean Directional Accuracy (MDA). The use of sentiment and attention variables as predictors increase significantly the forecast accuracy in terms of MDA but not in terms of Root Mean Squared Errors. We perform a Granger causality test using a post-double LASSO selection for high-dimensional VARs. Results show no “causality” from Social Media sentiment to cryptocurrencies returns
Year of publication: |
2022
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Authors: | Ciganovic, Milos ; D'Amario, Federico |
Publisher: |
[S.l.] : SSRN |
Subject: | Prognoseverfahren | Forecasting model | Virtuelle Währung | Virtual currency |
Saved in:
freely available
Extent: | 1 Online-Ressource (26 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 22, 2022 erstellt |
Other identifiers: | 10.2139/ssrn.4227022 [DOI] |
Classification: | C32 - Time-Series Models ; C53 - Forecasting and Other Model Applications ; c55 ; G17 - Financial Forecasting |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014239468
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