Predicting Bitcoin returns: Comparing the roles of newspaper- and internet search-based measures of uncertainty

Abstract

We compare the ability of two measures of uncertainty, a newspaper-based measure and an internet search-based measure, to predict Bitcoin returns. Using monthly data from July 2010 to May 2019 and a predictive regression model characterized by a heteroskedastic error structure and, we show that Bitcoin is a hedge against both measures. However, the predictive content of the internet-derived uncertainty related queries measure is statistically stronger than the measure of uncertainty based on newspapers for predicting Bitcoin returns, which is possibly due to the fact that the measure of uncertainty is now directly obtained from individual investors via internet searches.