Is Dogecoin a Viable Investment? Insights from Network and Bubble Effects

TL;DR

This paper investigates the factors influencing Dogecoin's returns, highlighting network effects, momentum, and sentiment, and explores the mechanisms behind its price bubble.

Contribution

It introduces a comprehensive analysis of Dogecoin's network externalities, momentum, and sentiment as predictors of its returns, and examines the bubble dynamics.

Findings

Dogecoin returns are significantly influenced by network externalities.

Momentum and investor attention proxies strongly forecast future returns.

The study sheds light on the mechanisms behind Dogecoin's price bubble.

Abstract

We find that three factors: Dogecoin network externalities, momentum, and tweet sentiment that capture the time-series expected Dogecoin returns. Dogecoin returns are exposed to Dogecoin network factors. We construct the network factors to capture the user adoption of Dogecoin. Moreover, there is a strong time-series momentum effect, and proxies for investor attention strongly forecast future Dogecoin returns. Lastly, we examine potential underlying mechanisms of the Dogecoin price bubble.