Cryptocurrency and Innovation: The Relationship with Technology in Light of Risk Aversion and Market Sentiment.


  • Angelo Corelli Associate Professor of Finance , NOVA School of Business and Economics, Portugal
  • Jatin Malhotra Professor, Finance and Quantitative Methods Vancouver Island University
  • Wissam El Khoury Chair, Department of Finance and Accounting American University in Dubai, United Arab Emirates


The paper performs a (Panel) Moderated Regression, Causality and Cointegration (complete version) test on the relationship between the exchange rate of major selected cryptocurrencies vs. major fiat currencies, and selected technology indices of various geographic areas and economic groups in the world, representative of different countries or areas in the world (Europe) and for different levels of market capitalization. The dataset allows to focus on the comparison pre- and post-Covid19 (complete version), testing the relationship in those two different time frames. The novelty of the study is the use of risk aversion and VIX volatility index (market sentiment) as control variables. Various indices of risk aversion have been developed, presenting different levels of trade-off in terms of availability (ease of calculation) and effectiveness. A good candidate seems to be the Global Risk Appetite Index (GRAI) by Kumar and Persaud (2002). As for the VIX index, it has been widely used as a proxy of market sentiment, but rarely applied to the understanding of currency trends (especially cryptocurrency). Our expectation is to observe some significant moderation effect for some of the indicators considered, in general and when observing the data for different sub-periods. with investors probably trying to hedge equity investments and diversify their portfolios differently, with risk aversion and VIX index to be a driving factor of those choices. We also expect results to be confirmed by the Causality and Cointegration (complete version) test. The paper aims to contribute to the Fintech literature and shed light on the possibilities of diversification offered by tech-related portfolios. As a corollary, it aims to determine how the effect of risk aversion and general market risk sentiment drives those choices.

Keywords: Cryptocurrency; Technology Index; Risk Appetite; Market Sentiment; Causality; Cointegration; Panel Regression.