From Hype to Interconnection: Investor Attention and Cryptocurrency Spillovers

The growth of cryptocurrencies has made them a crucial part of the modern financial sector. Cryptocurrencies are supported by technological advancements, and their interconnectedness has the potential to become a source of systemic risk, raising concerns about spillover effects. This study examines how investor attention influences spillover dynamics among major cryptocurrencies. Using a time-varying parameter vector autoregression model and ordinary least squares regression, we analyze the spillover structure of cryptocurrencies from 2020 to 2024. The results reveal strong interconnectedness, with Bitcoin, Ethereum, and Binance Coin acting as net transmitters of shocks, whereas Dogecoin, Solana, Ripple, and Cardano are net receivers. Investor attention generally reduces spillovers but intensifies them at extreme levels. Of interest, investor attention impacts is heterogeneous effects across assets. This study contributes to behavioral finance by uncovering how investor sentiment affects cryptocurrency interconnectedness and provides practical insights for investors and regulators, particularly regarding portfolio diversification and risk management during periods of heightened public interest.