Does global economic uncertainty matter for the volatility and hedging effectiveness of Bitcoin?

Abstract

We assess whether the long-run volatilities of Bitcoin, global equities, commodities, and bonds are affected by global economic policy uncertainty. Empirical results provide evidence supporting that, except for the case of bonds. We further examine whether the correlation between Bitcoin and global equities, commodities, and bonds are affected by global economic policy uncertainty and the results reveal that global economic policy uncertainty has a negative significant impact on the Bitcoin-bonds correlation, and a positive impact on both Bitcoin-equities and Bitcoin-commodities correlations, suggesting a possibility for Bitcoin to act as a hedge under specific * The authors would like to thank Professor Honghai Yu for many helpful comments, and Sifan Ding for excellent research assistance. # Corresponding author. economic uncertainty conditions. Interestingly, the hedging effectiveness of Bitcoin for both global equities and global bonds enhances slightly after considering the level of global economic policy uncertainty. Implications for investors and policy-makers are discussed.

Exogenous drivers of Bitcoin and Cryptocurrency volatility – A mixed data sampling approach to forecasting

“…Our main results show that the volatility in the Cryptocurrency market is not detached from economic fundamentals, but it is more driven by global economic and financial factors than country-specific ones. Generally, our results concur with the results of Conrad et al (2018) and Fang et al (2019) regarding Bitcoin.…”

“…1-day, 7-days, and 30days ahead forecasts since Cryptocurrencies are traded continuously. (Ciaian et al, 2017), but also policy uncertainty is important in Cryptocurrency markets (Demir et al, 2018, Fang et al, 2019. We note that our benchmark model, the basic GARCH(1,1) does a very poor job and is only included 3 and 7 times over all 36 possibilities.…”

“…The GARCH-MIDAS approach, which was initially applied into the broad finance and economics literature by Engle et al (2013), has been recently prolonged into the literature on Bitcoin finance. Using the GARCH-MIDAS approach, Fang et al (2019) provide evidence that global economic policy uncertainty enhances the hedging effectiveness of Bitcoin and the prediction of Bitcoin volatility, while Conrad et al (2018) explore the factors driving Bitcoin's volatility and provide evidence that Bitcoin volatility is closely linked to global economic activity. 5…”

Economic policy uncertainty and Bitcoin. Is Bitcoin a safe-haven asset?

“…By using the EPU index and the Equity Market Uncertainty index of Baker et al (2016), as well as the VIX as proxies of EPU, they find that the risk spillover effect from EPU to Bitcoin is insignificant and, therefore, Bitcoin could act as a safe haven or diversifier of EPU. Fang et al (2019) analysed the influence of EPU on the long-term…”

A Survey on Empirical Findings about Spillovers in Cryptocurrency Markets

“…Earlier papers have been focusing on the characteristics (Selgin 2015;Böhme et al 2015;Ammous 2018), volatility measurement (Katsiampa 2017(Katsiampa , 2019a(Katsiampa , 2019bChaim and Laurini 2018;Beneki et al 2019;, and inefficiency in the markets of digital coins (Urquhart 2016;Nadarajah and Chu 2017;Bariviera 2017). Another strand of papers have centered their interest on speculation and hedging properties in virtual currency markets (Dyhrberg 2016;Bouri et al 2017;Fang et al 2019) while others investigate liquidity characteristics of cryptocurrencies (Wei 2018; . Extant empirical testing generally tends to focus on high-capitalization cryptocurrencies in order to ascertain whether coins such as Ethereum, Ripple, Litecoin, or Stellar could substitute Bitcoin regarding investors' preferences in a noteworthy extent.…”