The Nexus Between Twitter-Based Uncertainty and Cryptocurrencies: A Multifractal Analysis

Abstract

We take the novel Twitter-based economic uncertainty (TEU) to examine if it has cross-correlation characteristics with four major cryptocurrencies i.e. Bitcoin, Ethereum, Litecoin, and Ripple. To conduct a more thorough analysis, we apply multifractal detrended cross-correlation analysis (MFDCCA) on seasonal-trend decomposition using Loess (STL) decomposed series as well as without decomposed series on the daily data, ranging from 1 June 2011 to 30 June 2021. The findings of this study indicate that: (i) all pairs of TEU with cryptocurrencies are multifractal and have power-law behavior; (ii) the pairs of Ethereum and Bitcoin with TEU are found to be the most multifractal while Litecoin with TEU has the lowest multifractal characteristics; (iii) all STL decomposed series of cryptocurrency have persistent cross-correlation with TEU with the exception of Ethereum which has anti-persistent cross-correlation with TEU; (iv) all without decomposed series of cryptocurrencies show significant persistent cross-correlation characteristics with TEU; (v) the highest linkage is found for the pair of Bitcoin with TEU. Moreover, to reveal the dynamic characteristics in the cross-correlation of TEU with cryptocurrencies, the rolling window is employed for MFDCCA. These findings have important managerial and academic implications for policymakers, investors, and market participants.

Navigating Choppy Waters: Interplay between Financial Stress and Commodity Market Indices

“…Since then, DCCA and MFDCCA have been extensively utilized in fields such as finance, chemistry and geophysics [88][89][90][91]. Regarding empirical investigation, several studies applied the MFDCCA approach to explore the cross-correlations between two financial time series, for instance efficiency of stock prices, Cryptocurrency prices and economic policy uncertainty, commodity prices and energy market, tourism and supply chain management [92][93][94][95][96][97][98][99].…”