Effects of economic policy uncertainty shocks on the interdependence between Bitcoin and traditional financial markets

Matkovskyy, Roman; Jalan, Akanksha; Dowling, Michael

doi:10.1016/j.qref.2020.02.004

Cited by 68 publications

(34 citation statements)

References 35 publications

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“…Several recent studies argued that the relationship between financial markets, especially stock markets, is affected by economic policy uncertainty (Li et al 2015 ; Li and Peng 2017 ; Fang et al 2017 , 2019 ; Badshah et al 2019 ; Matkovskyy et al 2020 ). Almost all these studies argue that EPU negatively impacts the correlations between these variables.…”

Section: Data and Econometric Frameworkmentioning

confidence: 99%

“…In this context, the EPU index, developed by Baker et al ( 2016 ), influences stock market returns (Antonakakis et al 2013 ; Arouri et al 2016 ; Christou et al 2017 ; Guo et al 2018 ; Hu et al 2018 ; Phan et al 2018 ; Xiong et al 2018 ; He et al 2020 ) and volatility (Yu et al 2018 ; Yu and Song 2018 ; Mei et al 2018 ; Balcilar et al 2019 ; Wang et al 2020 ). Therefore, a recent strand of literature focused on EPU’s effect on relationships between financial assets, including relationships between stock markets (Li and Peng 2017 ), bonds and stocks (Fang et al 2017 ; Li et al 2015 ), commodity and stock markets (Fang et al 2018 ; Badshah et al 2019 ), and Bitcoin and conventional assets (Matkovskyy et al 2020 ). Nearly all these studies reported evidence of a negative impact of EPU on the co-movement between these variables, and, in some cases, highlighted a significant portfolio implication related to EPU (Badshah et al 2019 ).…”

Section: Introductionmentioning

confidence: 99%

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Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter?

2021

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This study investigates the dynamic connectedness between stock indices and the effect of economic policy uncertainty (EPU) in eight countries where COVID-19 was most widespread (China, Italy, France, Germany, Spain, Russia, the US, and the UK) by implementing the time-varying VAR (TVP-VAR) model for daily data over the period spanning from 01/01/2015 to 05/18/2020. Results showed that stock markets were highly connected during the entire period, but the dynamic spillovers reached unprecedented heights during the COVID-19 pandemic in the first quarter of 2020. Moreover, we found that the European stock markets (except Italy) transmitted more spillovers to all other stock markets than they received, primarily during the COVID-19 outbreak. Further analysis using a nonlinear framework showed that the dynamic connectedness was more pronounced for negative than for positive returns. Also, findings showed that the direction of the EPU effect on net connectedness changed during the pandemic onset, indicating that information spillovers from a given market may signal either good or bad news for other markets, depending on the prevailing economic situation. These results have important implications for individual investors, portfolio managers, policymakers, investment banks, and central banks.

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Section: Data and Econometric Frameworkmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter?

2021

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“…In fact, Kurka (2019) indicate that the increasing market value of Bitcoin reinforces the risk spillover from Bitcoin, leading to some disruptions to the financial system. It could be that the time-variation in the risk spillovers reflects not only exogenous shocks related to economic and financial factors (Walther et al, 2019;Matkovskyy et al, 2020) but also security issues (Conti et al, 2018) and bubble risks (Su et al, 2018), both of which might contribute to the significant spillover effects between Bitcoin and conventional assets.…”

Section: Estimation Of Evars Based On the Car-arche Modelsmentioning

confidence: 99%

Risk spillover between Bitcoin and conventional financial markets: An expectile-based approach

Zhang

Bouri

Gupta

et al. 2021

The North American Journal of Economics and Finance

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We challenge the existing literature that points to the detachment of Bitcoin from the global financial system. We use daily data from August 17, 2011-February 14, 2020 and apply a risk spillover approach based on expectiles. Results show reasonable evidence to imply the existence of downside risk spillover between Bitcoin and four assets (equities, bonds, currencies, and commodities), which seems to be time dependent. Our main findings have implications for participants in both the Bitcoin and the traditional financial markets for the sake of asset allocation, and risk management. For policy makers, our findings suggest that Bitcoin should be monitored carefully for the sake of financial stability.

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“…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%

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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Effects of economic policy uncertainty shocks on the interdependence between Bitcoin and traditional financial markets

Cited by 68 publications

References 35 publications

Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter?

Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter?

Risk spillover between Bitcoin and conventional financial markets: An expectile-based approach

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

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