“Ubiquitous uncertainties”: spillovers across economic policy uncertainty and cryptocurrency uncertainty indices

Abstract

PurposeThe purpose of this paper is to extend the literature on the spillovers across economic policy uncertainty (EPU) and cryptocurrency uncertainty indices.Design/methodology/approachThis paper uses cross-country economic policy uncertainty indices and the novel data measuring the cryptocurrency price uncertainties over the period 2013–2021 to construct a sample of 946 observations and applies the time-varying parameter vector autoregression (TVP-VAR) model to do an empirical study.FindingsThe findings suggest that there are cross-country spillovers of economic policy uncertainty. In addition, the total uncertainty spillover between economic policies and cryptocurrency peaked in 2015 before gradually decreasing in the following periods. Concomitantly, the cryptocurrency uncertainty has acted as the “receiver.” More importantly, the authors found the predictive power of economic policy uncertainty to predict the cryptocurrency uncertainty index. This paper’s results hold robust when using alternative measurement of cryptocurrency policy uncertainty.Originality/valueThis study is the first research that deeply investigates the association between two uncertainty indicators, namely economic policy uncertainty and the cryptocurrency uncertainty index. We provide fresh evidence about the dynamic connectedness between country-level economic policy uncertainty and the cryptocurrency index. Our work contributes a new channel driving the variants of uncertainties in the cryptocurrency market.

An index of cryptocurrency environmental attention (ICEA)

“…The regression model learnt from the methodologies of Pastor and Veronesi (2012), Huynh et al. (2021), Foglia and Dai (2021), who examined whether the policy uncertainty can predict the Bitcoin price return, UCRY risk and stock price volatility. The regression model can be defined as Equation 12 as follows:where Crypto it is the cryptocurrency asset price or index at time t , ICEA it is the cryptocurrency environmental attention index at time t , CV it is the K × K matrix of control variables, c is a constant and ɛ it is an error term.…”

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

“…In contrast, cryptocurrencies do not act as hedge or safe-haven for economic policy uncertainty (Cheema et al 2020;Fasanya et al 2021;Hasan et al 2021;Jiang et al 2021;Lucey et al 2021;Wu et al 2019). Moreover, economic policy uncertainty predicts the cryptocurrency market volatility and returns (Al Mamun et al 2020;Bouri et al 2018;Demir et al 2018;Fang et al 2019;Foglia and Dai 2021;Papadamou et al 2021;Qin et al 2021;Shaikh 2020). Sometimes, there is no such association and predictiveness between cryptocurrency and economic policy uncertainty (Bouri et al 2017a;Wang et al 2019a), and crypto trading is usually based on market sentiment rather than information (Nie et al 2020;Park and Chai 2020).…”

“…They concluded that Bitcoin is a hedge for EPU risk during the pandemic times. Similarly, (Foglia and Dai 2021) have investigated the cryptocurrency and policy uncertainty relationship and predictive ability of EPU for cryptocurrency returns using time-varying parameter vector autoregression. They found that EPU predicts cryptocurrency uncertainty and is thus a suitable hedge.…”

Equity Risk and Return across Hidden Market Regimes

“…Nunez (Núñez et al 2019), however, provided a convincing argument showing that cryptocurrencies fail to maintain diversification in the case of a market crash. More recently, Foglia and Dai (2021) provided fresh evidence of the dynamic connectedness between economic policy uncertainty index (EPU; Baker et al (2016)) and the cryptocurrency price uncertainty index. The authors found that EPUs have positive predictive power for cryptocurrency uncertainty, i.e., dictate the behavior in the cryptocurrency market.…”