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Do FEARS drive Bitcoin?

Tobias Burggraf (Chair of Finance, WHU–Otto Beisheim School of Management, Vallendar, Germany)
Toan Luu Duc Huynh (Chair of Behavioral Finance, WHU–Otto Beisheim School of Management, Vallendar, Germany)
Markus Rudolf (Chair of Finance, WHU–Otto Beisheim School of Management, Vallendar, Germany)
Mei Wang (Chair of Behavioral Finance, WHU–Otto Beisheim School of Management, Vallendar, Germany)

Review of Behavioral Finance

ISSN: 1940-5979

Article publication date: 20 May 2020

Issue publication date: 1 July 2021




This study examines the prediction power of investor sentiment on Bitcoin return.


We construct a Financial and Economic Attitudes Revealed by Search (FEARS) index using search volume from Google's search engine to reveal household-level (“bankruptcy”, “unemployment”, “job search”, etc.) and market-level sentiment (“bankruptcy”, “unemployment”, “job search”, etc.).


Using a variety of quantitative methodologies such as the transfer entropy model as well as threshold regression and OLS, GLS and 2SLS estimations, we find that (1) investor sentiment has strong predictive power on Bitcoin, (2) household-level sentiment has larger effects than market-level sentiment and (3) the impact of sentiment is greater in low sentiment regimes than in high sentiment regimes. Based on these information, we build a hypothetical trading strategy that outperforms a simple buy-and-hold strategy both on an absolute and risk-adjusted basis. The results are consistent across cryptocurrencies and regions.

Research limitations/implications

The findings contribute to the ongoing debate in the literature on the efficiency of cryptocurrency markets. The results reveal that the Bitcoin market is not efficient in the sense of the efficient market hypothesis – asset prices do not fully reflect all available information and we were able to “beat the market”. In addition, it sheds further light on the debate whether Bitcoin can be considered a medium of exchange, i.e. a currency or an investment product. Because investors are reallocating their Bitcoin holdings during times of increased market sentiment due to liquidity needs, they obviously consider bitcoin an investment product rather than a currency.


This study is the first to examine the impact of investor sentiment measured by FEARS on Bitcoin return.



We thank Andrew Urquhart, Larisa Yarovaya, Duc Khuong Nguyen, Masaaki Fukasawa and seminar participants of the 2019 Cryptocurrency Research Conference, the 7th Asian Quantitative Finance Conference (AQFC) and the International Conference on Business and Finance 2019 for helpful comments and discussions. We are responsible for remaining errors.


Burggraf, T., Huynh, T.L.D., Rudolf, M. and Wang, M. (2021), "Do FEARS drive Bitcoin?", Review of Behavioral Finance, Vol. 13 No. 3, pp. 229-258.



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