What Drives Cryptocurrency Returns? A Sparse Statistical Jump Model Approach

Research output: Contribution to conferenceAbstractpeer-review

Abstract

We consider the statistical sparse jump model, a recently developed, robust and interpretable regime switching model, to identify features that drive the return dynamics of the largest cryptocurrencies. The approach simultaneously performs feature selection, parameter estimation, and state classification. Our large number of candidate features comprises cryptocurrency, sentiment, and financial market-based time series that previously have been identified in the emerging literature as influencing cryptocurrency returns, as well as new ones. Our empirical study indicates that a three-state model offers the most accurate description of the cryptocurrency returns dynamics. These states have straightforward market-based interpretations as they correspond to bull, neutral, and bear market regimes, respectively. Using the data-driven feature selection methodology, we are able to determine which features are important and which ones are not. Our findings reveal that, among the set of candidate features, the first moments of returns, features that represent trends and reversal signals, market activity, and public
attention are key drivers of crypto market dynamics.
Original languageEnglish
Publication statusPublished - 2023 Jun 19
Event29th Nordic Conference in Mathematical Statistics - Chalmers University of Technology and the University of Gothenburg , Gothenburg, Sweden
Duration: 2023 Jun 192023 Jun 22
https://nordstat2023.org/

Conference

Conference29th Nordic Conference in Mathematical Statistics
Abbreviated titleNordstat 2023
Country/TerritorySweden
CityGothenburg
Period2023/06/192023/06/22
Internet address

Subject classification (UKÄ)

  • Economics

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