RavenPack | September 14, 2014
Bitcoin investors have had a crazy old ride the last few years, but had they used media sentiment and attention to condition when to get in and out of the crypto-currency they would’ve been a lot better off than a buy-and-hold strategy.
Using RavenPack News Analytics’ version 4.0 data, which tracks the entity Bitcoin, we were able to test if media attention and sentiment would help explain bitcoin price movements over the last three years.
We created a
Bitcoin media attention index
, weighted by the relevance score of each mention, and a sentiment index focusing on when the media reported large price movements up or down to see if that could impact future prices. We tested our data against the 24-hour average daily Bitcoin prices from Quandl.com (a great resource, by the way). Their Bitcoin price index looks at an aggregate across multiple exchanges and is updated daily at 6:00 pm EST.
We ended up creating a dynamic model using the previous 6 months’ prices as a training set, and the previous 30-day lagged
values of Bitcoin returns, media attention and sentiment as predictor variables
We found that media attention and sentiment did in fact improve on a model simply considering past returns. Not only where we able to improve the risk-return trade-off (Information Ratio) of a simple buy-&-hold strategy from 0.99 to about 1.85, we were also able to reduce the max. drawdown by more than 25%.
As you can see from the chart, had we been
tracking media attention and sentiment in the news
, we would have participated in the amazing price ride of Bitcoin and would have been able to do so at much lower risk than in a simple buy-&-hold. (see Figure 1 below).
Please use your business email. If you don't have one, please email us at email@example.com.
We will process your personal data with the purpose of managing your personal account on
RavenPack and offering our services. You can exercise your rights of access, rectification,
erasure, restriction of processing, data portability and objection by emailing us at firstname.lastname@example.org. For more information, you can
Your request has been recorded and a team member will be in touch soon.
We consider incorporating sentiment signals from news, earnings call transcripts, and insider transactions to
boost the risk-adjusted returns, and revive factor performance.
We find stronger, more predictable market reactions when the words of company executives agree with their actions.
We have gathered 12 insights from 2021 research that can be leveraged in 2022.