Researchers at Pennsylvania State University conducted a study to determine whether attitudes and emotions surrounding cryptocurrency could predict returns. They found that social media sentiment significantly predicts crypto returns, while sentiment from news media does not. The researchers used natural language processing to analyze millions of financial news articles and social media comments, comparing sentiment scores to ground truth returns. They concluded that market exuberance positively influences momentum but does not predict volatility, suggesting that sentiment affects returns through price perception and demand shocks rather than the risk premium channel. The researchers recommend further research on the relationship between social media sentiment and crypto returns.
