Public Information impact on Cryptocurrency trading activity : Evidence from News Media

This paper examines the impact of news sentiment on the daily returns, volatility, and liquidity in the cryptocurrency market. The news sentiment indicator is constructed using cryptocurrency-specific news headlines through Natural Language Processing(NLP) technique. The sentiments are classified into positive and negative news sentiments to understand their differential impact. The results suggest that the positive(negative) news increases(decreases) the returns of the Cryptocurrency index and individual cryptocurrencies. This implies that positive news boosts the confidence of the investors, thereby encouraging them to buy, and negative news creates uncertainty. The most dominant cryptocurrency, Bitcoin, experiences a “negativity effect,” i.e., the impact of negative news on returns is higher than the positive news. In the case of volatility and liquidity, it was found that positive(negative) news sentiment leads to an increase(decrease) both in volatility and liquidity of the cryptocurrency. There exists an asymmetric volatility effect on altcoins. The “fear of missing out” phenomenon explains the increase in volatility with the positive news. However, Bitcoin’s volatility and liquidity are immune to the new sentiment