The COVID-19 pandemic, economic policy uncertainty and the hedging role of cryptocurrencies: a global perspective

Abstract

PurposeThe COVID-19 pandemic has led to global economic policy uncertainty, which has increased the need to investigate ways to mitigate the uncertainty. This study aims to examine the potential of cryptocurrencies as a hedge and safe haven avenue against economic policy uncertainty.Design/methodology/approachThis study investigates the behavior of the five leading cryptocurrencies in relation to country-level and group-level economic policy uncertainty indices, as measured by the text-based method developed by Baker et al. (The Quarterly Journal of Economics, 2016, 131, 1593–1636). The research covers a broad range of emerging and developed economies from July 2013 to September 2020. The study employs the approach of Narayan et al. (Economic Modelling, 2016, 53, 388–397) to examine the hedging and safe-haven properties of cryptocurrencies.FindingsThis study finds that the top cryptocurrencies play a hedging role against economic policy uncertainty, with some exceptions. Additionally, there is evidence to support the idea that cryptocurrencies can serve as a safe haven during the COVID-19 pandemic. As a result, investors may benefit from using cryptocurrencies as a risk-management avenue during times of uncertainty.Originality/valueThis research contributes to the existing literature by testing the cryptocurrencies' hedging and safe haven properties in a new way, by analyzing their lead and lag behaviors using a recent and innovative approach. Additionally, it examines a wide range of emerging and advanced markets, providing insight into the potential of using cryptocurrencies as a risk mitigation avenue.

The effect of policy uncertainty on the volatility of bitcoin

“…Especially in times of crisis, our study period contains the Covid crisis. In this regard, Muhammad Aftab et al (2023) find that cryptocurrencies can serve as a safe haven during the COVID-19 pandemic. Thus, investors may benefit from using cryptocurrencies as a risk-management avenue during times of uncertainty.…”

“…They noticed that Bitcoin’s returns and volatility increase during more uncertain times, just like gold. In addition, Muhammad Aftab et al (2023) find that cryptocurrencies can serve as a safe haven during the COVID-19 pandemic. As a result, investors may benefit from using cryptocurrencies as a risk-management avenue during times of uncertainty.…”

Financial Behaviour, Financial Self Efficacy and Intention to Invest in Cryptocurrency

“…Youth who have a positive attitude towards investing but are concerned about laws and regulations may delay their investment decisions. Other researchers found that the cryptocurrency market is known for its high volatility (Aftab et al, 2023). Youth who have a positive attitude towards investing may be hesitant to enter a market that can experience significant price fluctuations.…”