The Effect of Uncertainty Indexes on the Overconfidence Bias of Bitcoin

Abstract

This paper investigates the impact of uncertainty on investor overconfidence in the Bitcoin market. While prior studies mainly focus on returns and volatility, limited attention has been paid to behavioral responses. Using a nonlinear autoregressive distributed lag (NARDL) model and monthly data from June 2011 to August 2022, we examine the asymmetric effects of major U.S. uncertainty indices (EPU, GPR, CPU, TEU and EURQ). The results reveal significant asymmetries. In the short run, increases in EPU and GPR reduce investor overconfidence, while decreases have the opposite effect. TEU and EURQ negatively affect investor confidence in both the short and long run. These findings highlight the key role of information-based uncertainty in shaping investor behavior and contribute to the behavioral finance literature by providing new evidence from cryptocurrency markets.