Cryptocurrency Jump Contagion with Market Sentiment Events: A Study of High Frequency Cross Effect

This study aims to understand the contagion effect of the major equity market sentiment events, defined as jumps in the VIX index, on cryptocurrency price jumps and the corresponding feedback effect on investors' sentiment. Using recent high frequency intraday data with multivariate Hawkes processes, we find that several noteworthy contagion effects exist between Bitcoin and the market sentiment proxied by the VIX index. First of all, we find that positive market sentiment jumps tend to trigger a moderate level of cross-contagion on both positive and negative jumps in the Bitcoin market, whereas negative market sentiment jumps have no contagion effect on the Bitcoin prices. We also find that the Bitcoin market shows stronger positive self-contagion and cross-contagion effects than the equity market, in general. We also observe a lasting fear of missing out (FOMO) phenomenon in Bitcoin. It is supported by the evidence that the effect of positive jumps in the Bitcoin market lasts three times as long as that in both the equity market and the negative Bitcoin price jumps, and these positive jumps in Bitcoin may serve as a harbinger of equity market movement. These findings provide a better understanding of risk control and policy guidance for the cryptocurrency market.