2692-4048ISSN (Online)
2770-0070ISSN (Print)
Volume 17 , Issue 1 , PP: 26-52, 2025 | Cite this article as | XML | Html | PDF | Full Length Article
Ahmed H. Elgayar 1 * , Farouk F. Elgazzar 2 , Noura Metawa 3
Doi: https://doi.org/10.54216/FPA.170103
This research investigates how Egyptian investor sentiment affects cryptocurrency returns, focusing specifically on Bitcoin. We utilized an enhanced investor sentiment index in Egypt, constructed through factor analysis of various literature-based variables. Our study's findings revealed a notable positive correlation between the investor sentiment index, lagged by one order, and Bitcoin returns, as per the estimation and analysis using VAR models. Analysis indicates that a one standard deviation change in the investor sentiment index leads to an alteration in the influence of each standard deviation of the original positive variable, resulting in a switch from positive to negative and vice versa in the medium and long term. Regarding variance decomposition, the short-term variance error of 100% is primarily explained by Bitcoin returns themselves. However, in the medium to long term, besides Bitcoin returns, the investor sentiment index emerges as the most influential variable affecting Bitcoin returns. Causality tests reveal a unidirectional short-term impact from the investor sentiment index to Bitcoin returns via Granger causality tests. Additionally, using the Toda-Yamamoto causality test, long-term bidirectional effects between Bitcoin returns and the investor sentiment index were observed.
Cryptocurrency Behavior , Bitcoin, Egypt , Investor Sentiment , Factor Analysis , Vector Autoregressive (VAR) Model , Impulse Response Function (IRF) , Forecast Error Variance Decomposition (FEVD) , Granger Causality Test , and Toda-Yamamoto causality test
[1] Abdullah, L. T. (2022). Forecasting time series using Vector Autoregressive Model. International Journal of Nonlinear Analysis and Applications, 13(1), 499-511.
[2] Abdel Hameed, N. A. (2012). A study of the Impact of Investor Sentiment on Stock Market Return: The Case of Egypt, doctoral dissertation, Faculty of Commerce, Cairo University, Egypt.
[3] Abu Omaria, Shadid and Jaradat (2018). The effect of trading digital currencies (Bitcoin) in reducing the costs of electronic purchases, Palestine National University, Bethlehem.
[4] Anamika, Chakraborty, M., & Subramaniam, S. (2023). Does sentiment impact cryptocurrency?. Journal of Behavioral Finance, 24(2), 202-218.
[5] Akyildirim, E., Corbet, S., Lucey, B., Sensoy, A., & Yarovaya, L. (2020). The relationship between implied volatility and cryptocurrency returns. Finance Research Letters, 33, 101212.
[6] Baek, C., & Elbeck, M. (2015). Bitcoins as an investment or speculative vehicle? A first look. Applied Economics Letters, 22(1), 30-34.
[7] Baig. A.. Blau. B. M.. & Sabah. N. (2019). Price clustering and sentiment in bitcoin. Finance Research Letters. 29. 111-116.
[8] Baker, M. & Stein, J., C., (2004). Market liquidity as a sentiment indicator, Journal of Financial Markets, Elsevier, 7(3), 271-299.
[9] Bandopadhyay Arindam and Jones A. L. (2006). Measuring Investor Sentiment in Equity Markets, Journal of Asset Management, 7(¾), 208-215.
[10] Barber, B. M., Odean, T., & Zhu, N. (2006, September). Do noise traders move markets?. In EFA 2006 Zurich meetings paper.
[11] Bariviera, A. F., & Merediz-Sol`a, I. (2021). Where do we stand in cryptocurrencies economic research? A survey based on hybrid analysis. Journal of Economic Surveys, 35(2), 377–407.
[12] Barski and Wilmer (2015). Bitcoin for the Befuddled. 1st Edition. No Starch Press.
[13] Bartlett, M. S. (1954). A note on the multiplying factors for various chi square approximations. Journal of Royal Statistical Society, 16(Series B), 296-298.
[14] Ben Khelifa, S., Guesmi, K., & Urom, C. (2021). Exploring the relationship between cryptocurrencies and hedge funds during COVID-19 crisis. International Review of Financial Analysis, 76, Article 101777.
[15] Blau. B. M. (2017). Price dynamics and speculative trading in bitcoin. Research in International Business and Finance . 41.
[16] Bouoiyour J. & Refk Selmi, (2015), What Does Bitcoin Look Like?, Annals of Economics and Finance, 16, (2), 449-492
[17] Boyer, B. H. (2006), “Comovement among Stocks with Similar Book to Market Ratios”, Working Paper, Brigham Young University.
[18] Brito, J., Shadab, H., & Castillo, A. (2014). Bitcoin financial regulation: Securities, derivatives, prediction markets, and gambling. Colum. Sci. & Tech. L. Rev., 16, 144.
[19] Brooks, C., (2002). Introductory econometrics for finance. United Kingdom, Cambridge University Press.
[20] Brown, Gregory W. and Michael T. Cliff, (2004). Investor sentiment and the near-term stock market, Journal of Empirical Finance, 11, 1-27.
[21] Bukovina, J., & Marticek, M. (2016). Sentiment and bitcoin volatility. University of Brno.
[22] Campbell, J. Y., Grossman, S. J., & Wang, J. (1993). Trading volume and serial correlation in stock returns. The Quarterly Journal of Economics, 108(4), 905-939.
[23] Cheah, E. T., & Fry, J. (2015). Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin. Economics letters, 130, 32-36..
[24] Chemkha, R., Ben Saïda, A., Ghorbel, A., & Tayachi, T. (2021). Hedge and safe haven properties during COVID-19: Evidence from Bitcoin and gold. The Quarterly Review of Economics and Finance, 82, 71–85.
[25] Chen, T., Lau, C. K. M., Cheema, S., & Koo, C. K. (2021). Economic policy uncertainty in China and bitcoin returns: evidence from the COVID-19 period. Frontiers in Public Health, 9, 651051.
[26] Corbet, S., Lucey, B., Urquhart, A., & Yarovaya, L. (2019). Cryptocurrencies as a financial asset: A systematic analysis. International Review of Financial Analysis, 62, 182–199.
[27] Dastgir, S., Demir, E., Downing, G., Gozgor, G., & Lau, C. K. M. (2019). The causal relationship between Bitcoin attention and Bitcoin returns: Evidence from the Copula-based Granger causality test. Finance Research Letters, 28, 160–164.
[28] Doukas, J. A., & Milonas, N. T. (2004). Investor sentiment and the closed‐end fund puzzle: Out‐of‐sample evidence. European Financial Management, 10(2), 235-266.
[29] Mariana, C. D., Ekaputra, I. A., & Husodo, Z. A. (2021). Are Bitcoin and Ethereum safe-havens for stocks during the COVID-19 pandemic?. Finance research letters, 38, 101798.
[30] ECB (2019). Annual Report. Press Release. Frankfurt: European Central Bank.
[31] El-Gayar, A. H. (2021). The Impact of Investor Sentiment and Herding Behavior on Stock Market Liquidity (Doctoral dissertation, Tanta University).
[32] Enders, W. (2004) Applied Econometric Time Series, 2nd Edition. In: Wiley Series in Probability and Statistics, John Wiley & Sons, Inc., Hoboken.
[33] Estrada. J. C. (2017). Analyzing Bitcoin Price Volatility. thesis master . University of California. Berkeley.
[34] Evrim Mandaci, P., & Cagli, E. C. (2021). Herding intensity and volatility in cryptocurrency markets during the COVID-19. Finance Research Letters, 102382.
[35] Frazzini,A. and Lamont,O.,(2006). Dumb money: mutual fund flows and the cross-section of stock returns. Journal of Financial Economics. 88, 299–322.
[36] Fisher, Kenneth L. and Meir Statman, (2000), Investor sentiment and stock returns, Financial Analysts Journal, 56, 16-23.
[37] Gaies, B., Nakhli, M. S., Sahut, J. M., & Guesmi, K. (2021). Is Bitcoin rooted in confidence?–Unraveling the determinants of globalized digital currencies. Technological Forecasting and Social Change, 172, 121038.
[38] Garcia, D., & Schweitzer, F. (2015). Social signals and algorithmic trading of Bitcoin. Royal Society open science, 2(9), 150288.
[39] Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: journal of the Econometric Society, 424-438.
[40] Gujarati, D. (1995). Basic econometrics (3rd ed.). New York: McGraw-Hill.
[41] Guzm´an, A., Pinto-Guti´errez, C., & Trujillo, M.-A. (2021). Trading Cryptocurrencies as a pandemic pastime: COVID-19 lockdowns and bitcoin volume. Mathematics, 9, 1771.
[42] Hamilton, J. D. (2020). Time series analysis. Princeton university press.
[43] Hasan, M. B., Hassan, M. K., Rashid, M. M., & Alhenawi, Y. (2021). Are safe haven assets really safe during the 2008 global financial crisis and COVID-19 pandemic?. Global Finance Journal, 50, 100668.
[44] Hoang, L.T., Baur, D.G., 2021. Cryptocurrencies are Not Immune to Coronavirus: Evidence from Investor Fear. Available at SSRN 3778988.
[45] Hobijn, Franses, P., & M., Ooms (2004). Generalizations of the KPSS-test for stationarity. Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, 58(4), 483-502.
[46] Huynh, T. L. D., Wang, M., & Vo, V. X. (2021). Economic policy uncertainty and the Bitcoin market: An investigation in the COVID-19 pandemic with transfer entropy. The Singapore Economic Review, forthcoming, 1–27.
[47] Ibikunle, G., McGroarty, F., & Rzayev, K. (2020). More heat than light: Investor attention and bitcoin price discovery. International Review of Financial Analysis, 69, 101459.
[48] Jo. H.. Park. H.. & Shefrin. H. (2018). Bitcoin and Sentiment. Retrieved from https://ssrn.com/abstract=3230572
[49] Kaniel, Ron, Gideon Saar, and Sheridan Titman, (2004), Individual investor sentiment and stock returns, Working paper, Duke University.
[50] Kumar, Manmohan S. and Avinash Persaud, (2002), “Pure Contagion and Investors’ Shifting Risk Appetite: Analytical Issues and Empirical Evidence”, International Finance, 5:3, 401- 436.
[51] Kumar A., and L. Charles, (2006), Retail investor sentiment and return comovement, Journal of Finance, 61.
[52] Lee, Charles, Andrei Shleifer, and Richard Thaler. (1991). “Investor Sentiment and the Closed-End Fund Puzzle.” Journal of Finance, vol. 46, no. 1 (March):75–109.
[53] Lee, Y.-H., Hay, C., Liu, H.-C., & Diaz, J. F. (2021). Further evidence of herding behavior in cryptocurrency markets during the COVID-19 pandemic. Journal of Accounting, Finance & Management Strategy, 16, 151–170.
[54] Lemmon, M., & Portniaguina, E. (2006). Consumer confidence and asset prices: Some empirical evidence. The Review of Financial Studies, 19, 1499–1529.
[55] Lin, Z. Y. (2020). Investor attention and cryptocurrency performance. Finance Research Letters, 101702.
[56] L´opez-Cabarcos, M. A., P´erez-Pico, A. M., Pi˜neiro-Chousa, J., & ˇSevi´c, A. (2019). Bitcoin volatility, stock market and investor sentiment. Are they connected? Finance Research Letters, 38(1), Article 101399.
[57] Malkiel, B.G. (1977). “The Valuation of Closed-End Investment-Company Shares.” Journal of Finance 32, no. 3: 847–859.
[58] Melki, A., & Nefzi, N. (2021). Tracking safe haven properties of cryptocurrencies during the COVID-19 pandemic: A smooth transition approach. Finance Research Letters, 102243.
[59] Neal, Robert and Wheatley, Simon M., (1998), Do Measures of Investor Sentiment Predict Returns? Journal of Financial and Quantitative Analysis, 33, issue 04.
[60] Owaisi, A. (2017) Islamic electronic money - Doha – Qatar
[61] Pallant, Julie. (2005). SPSS survival manual: a step-by-step guide to data analysis using SPSS. Maidenhead: Open University Press/McGraw-Hill.
[62] Perry-Carrera. B. (2018). Effect of Sentiment on Bitcoin Price Formation. Durham. North Carolina. Honors Thesis submitted in partial fulfillment of the requirements of Graduation with Distinction in Economics in Trinity College of Duke University.
[63] Persaud, Avinash, (1996), “Investors’ Changing Appetite for Risk”. J.P. Morgan Securities Ltd., Global FX Research.
[64] Philippas, H., Rjiba, K., & Guesmi, S. (2019). Media attention and Bitcoin prices. Finance Research Letters, 30, 37–43.
[65] Qiu Lily and Welch Ivo (2006), "Investor sentiment measures", Working Paper, Brown University.
[66] Sabah, N. (2020). Cryptocurrency accepting venues, investor attention, and volatility. Finance Research Letters. 36, Article 101339.
[67] Scheinkman, J. A., & Xiong, W. (2003). Overconfidence and Speculative Bubbles. Journal of political Economy, 111, 1183-1220.
[68] Shams, S. (2018), The Impact of Investor Sentiment on Stock Prices in the Egyptian Stock Market, The Scientific Journal of commercial and environmental studies, 9 (2), 743-767.
[69] Shen, D., Urquhart, A., & Wang, P. (2019). Does twitter predict Bitcoin? Economics Letters, 174, 118–122.
[70] Sirri, E.R., and P. Tufano. (1998). “Costly Search and Mutual Fund Flows.” Journal of Finance 53, no. 5: 1589–1622.
[71] Sun, W., (2003). Relationship between trading volume and security prices and returns. Area Exam Report, MIT Laboratory for Information and Decision Systems, Technical Report P-2638.
[72] Swaminathan Bhaskaran, (1996), “Time-varying expected small firm returns and closed-end fund discounts”, Review of Financial Studies 9, pp 845–887.
[73] Toda, H. Y., & Phillips, P. C. B. (1994). Vector auto regressions and causality: A theoretical overview and simulation study. Econometric Reviews, 13(2), 259-285.
[74] Tabachnick, B. G., & Fidell, L. S. (2001). Using Multivariate Statistics. Boston: Allyn and Bacon.
[75] U.S. Securities and Exchange Commission. (2017). Agency financial report: Fiscal year 2017. https://www.sec.gov/files/sec-2017-agency-financial-report.pdf
[76] Urquhart, A. (2018). What causes the attention of Bitcoin? Economics Letters, 166, 40–44.
[77] Verbeek, M. (2004) A Guide to Modern Econometrics. 2nd Edition, Erasmus University Rotterdam, John Wiley & Sons Ltd., Hoboken.
[78] Xu, Y., & Y., Sun, (2010). Dynamic linkages between China and US equity markets under two recent financial crises, A Thesis Presented in Fulfillment of the Requirements of Master Degree, LUND University, School of Economics and Management.
[79] www.bloomberg.com
