The effect of political and economic uncertainty on the cryptocurrency market

Colon, Francisco; Kim, Chaehyun; Kim, Hana; Kim, Wonjoon

doi:10.1016/j.frl.2020.101621

Cited by 140 publications

(75 citation statements)

References 14 publications

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“…Aysan et al [2019] demonstrate that the Geopolitical Uncertainty Index (GPR) can predict Bitcoin returns and volatility. Conlon et al [2020] further compared the impacts of GEPU and GPR indexes on cryptocurrency returns, yet found no substantial safe haven or hedging properties of cryptocurrencies against either uncertainty proxies, apart from a weak ability to hedge against GEPU during a bull market. Their results are consistent with other papers in this area, such as Wu et al [2019], Al Mamun et al [2020].…”

Section: Introductionmentioning

confidence: 99%

The Cryptocurrency Uncertainty Index

et al. 2021

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We have developed and made available a new Cryptocurrency Uncertainty Index (UCRY) based on news coverage. Our UCRY Index captures two types of uncertainty: that of the price of cryptocurrency (UCRY Price) and uncertainty of cryptocurrency policy (UCRY Policy). We show that the constructed index exhibits distinct movements around major events in cryptocurrency space. We suggest that this index captures uncertainty beyond Bitcoin, and can be used for academic, policy, and practice-driven research.

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Section: Introductionmentioning

confidence: 99%

The Cryptocurrency Uncertainty Index

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“…Commonly, studies show various assets, including gold, long term treasury bonds, currencies, and cryptocurrencies, have been utilized as effective hedgers and safe-haven assets (see, e.g., Baur and Lucey, 2010;Ranaldo and Söderlind, 2010;Flavin et al, 2014;Urquhart and Zhang, 2019). Given the evidence, many mainstream studies have explored the potential role of different assets such as gold, foreign exchange, and cryptocurrencies as potential hedgers and safe-haven assets, during the turbulent times of the COVID-19 pandemic (Ji et al, 2020;Colon et al, 2020;Dutta et al, 2020, among others). Similarly, considering the inherent diversification capability of the green bond, we test whether green bond constitutes as an effective hedge and safe-haven asset during COVID-19.…”

Section: Introductionmentioning

confidence: 99%

Diversifier or More? Hedge and Safe Haven Properties of Green Bonds During COVID-19

et al. 2021

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Against the backdrop of the Covid-19 pandemic, this study explores the hedging and safehaven potential of green bonds for conventional equity, fixed income, commodity, and forex investments. We use the cross-quantilogram approach that provides a better understanding of the dynamic relationship between assets under different market conditions. Our full sample results show that the green bond index could serve as a diversifier asset for medium-and long-term equity investors. Besides, it can also serve as a hedging and safe haven instrument for currency and commodity investments. Moreover, the sub-sample analysis of the pandemic crisis period shows a heightened short-and medium-term lead-lag association between the green bond index and conventional investment returns. However, the green bond index emerges as a significant hedging and safe-haven asset for the long-term investors of conventional financial assets. Our results offer insights for long-term investors whose portfolios comprise conventional assets such as equities, commodities, forex, and fixed income securities. Further, our findings reveal the potential role that the green bond investments could play in global financial recovery efforts without compromising the low-carbon transition targets.

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“…They employed non-parametric quantile and Granger Causality test and found that EPU index positively correlated with several cryptocurrencies in bull market, and even larger number of currencies correlated to bear market. (Colon et al 2021) examined the effect of political and economic uncertainties on the cryptocurrency market using OLS regression model. The results of monthly data confirmed that cryptocurrencies are a strong hedge against GPU and weak against EPU during bullish trend.…”

Section: Role Of Cryptocurrencies For Country Epusmentioning

confidence: 99%

“…While talking about the global financial crisis, the Eurozone serial crisis, and other events of higher uncertainty (Baker et al 2016) argued that fears and worries about policy uncertainty intensified in awakening a sharp economic downfall between 2008-2009. Particularly, in higher periods of economic uncertainty, either investors restrict their investments, wait for current conditions to be settled down, or look to find suitable strategies to mitigate uncertainty around the globe. Interestingly, the cryptocurrency market appeared as a risk management tool for the domestic and international investors of stock and commodity markets around the globe, particularly during the period of higher uncertain events (Akhtaruzzaman et al 2021a(Akhtaruzzaman et al , 2021bAl Mamun et al 2020;Ariefianto 2020;Bouri et al 2017aBouri et al , 2017bBouri et al , 2020bBouri et al , 2017cBouri et al , 2017dBouri et al , 2018Bouri and Gupta 2019;Cheema et al 2020;Chen et al 2021;Colon et al 2021;Demir et al 2018;Fang et al 2020;Fasanya et al 2021;Haq et al 2021;Hasan et al 2021;Jiang et al 2021;Kalyvas et al 2020;Nguyen 2020;Koumba et al 2020;Lucey et al 2021;Matkovskyy et al 2020;Mokni et al 2020;Nie et al 2020;Papadamou et al 2021;Park and Chai 2020;Paule-Vianez et al 2020;Wang et al 2019b;Qin et al 2021;Raheem 2021;Rubbaniy et al 2021;Wang ...…”

Section: Introductionmentioning

confidence: 99%

“…Therefore, the current COVID-19 crisis could lead towards a slower economic and financial recovery, as after the global financial crisis (Baker et al 2016;Davis 2016). Economic policy uncertainty has appeared as a crucial predictor of volatility in the cryptocurrency market (Bouri and Gupta 2019;Chen et al 2021;Colon et al 2021;Fang et al 2020). However, the presence of cryptocurrency in current era may lead to hedging and mitigating of risk for investors during and in the recovery phase of COVID-19 crisis.…”

Section: Introductionmentioning

confidence: 99%

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Economic Policy Uncertainty and Cryptocurrency Market as a Risk Management Avenue: A Systematic Review

Haq

Maneengam

Chupradit

et al. 2021

Risks

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Cryptocurrency literature is increasing rapidly nowadays. Particularly, the role of the cryptocurrency market as a risk management avenue has got the attention of researchers. However, it is an immature asset class and requires gaps in current literature for future research directions. This research provides a systematic review of the vast range empirical literature based on the cryptocurrency market as a risk management avenue against economic policy uncertainty (EPU). The review discovers that cryptocurrencies have mixed connectedness patterns with all national EPU therefore, the risk mitigation ability varies from country to country. The review finds that heterogeneous correlation patterns are due to the dependence of EPU on the policies and decisions usually taken by regulatory authorities of a particular country. Additionally, heterogeneous EPU requires heterogeneous solutions to deal with stock market volatility and economic policy uncertainty in different economies. Likewise, the divergent protocol and administration of currencies in the crypto market consequently vicissitudes the hedging and diversification performance against each economy. Many research lines can benefit investors, policymakers, fund managers, or portfolio managers. Therefore, the authors suggested future research avenues in terms of topics, data frequency, and methodologies.

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The effect of political and economic uncertainty on the cryptocurrency market

Cited by 140 publications

References 14 publications

The Cryptocurrency Uncertainty Index

The Cryptocurrency Uncertainty Index

Diversifier or More? Hedge and Safe Haven Properties of Green Bonds During COVID-19

Economic Policy Uncertainty and Cryptocurrency Market as a Risk Management Avenue: A Systematic Review

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