Reddit as a prediction tool for crypto-assets

Authors

  • Luis Antonio Loredo Camou Princeton University

DOI:

https://doi.org/10.12660/rbfin.v20n1.2022.83888

Keywords:

Cryptocurrencies, Internet message boards, Machine Learning, Forecasting returns, Volatility forecasting, Sentiment analysis

Abstract

Cryptocurrencies, such as Bitcoin and Ethereum, have recently become a conversation topic among the general population. This paper will explore the information available in Reddit regarding crypto assets. Unlike other social platforms, Reddit allows analyzing the general population sentiment while conveniently organizing information by topic. We study the benefit of sentiment variables derived from Reddit's crypto forums to forecast volatilities and returns. While volatility forecasts seem to benefit from Reddit sentiment variables consistently, results are not statistically different from a benchmark. In contrast, returns present mixed forecasting results but show statistical differences from the proposed benchmark. We also offer evidence that the Reddit variables gain importance in market-wide and asset-specific events.

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Published

04/09/2022 — Updated on 05/07/2022