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Cryptocurrency return dependency and economic policy uncertainty

Author

Listed:
  • Yen, Kuang-Chieh
  • Nie, Wei-Ying
  • Chang, Hsuan-Ling
  • Chang, Li-Han

Abstract

This study investigated whether economic policy uncertainty (EPU) affects the degree of Bitcoin return dependency in the cryptocurrency (crypto) market by calculating the Pearson correlation between Bitcoin returns and the average returns of 19 cryptocurrencies to determine the return dependency. First, we found that an increase in global EPU strengthens the dependency effect. Among the country-level EPU indexes, we found that the increased EPU of crypto-friendly countries (United States, United Kingdom, Japan, and South Korea) is the main enhancer of dependency. By contrast, the EPU index of crypto-unfriendly countries (China and Russia) exhibits a statistically nonsignificant effect. Finally, the empirical results remain similar if we replace Bitcoin with Ethereum to measure dependency.

Suggested Citation

  • Yen, Kuang-Chieh & Nie, Wei-Ying & Chang, Hsuan-Ling & Chang, Li-Han, 2023. "Cryptocurrency return dependency and economic policy uncertainty," Finance Research Letters, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323005548
    DOI: 10.1016/j.frl.2023.104182
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin; Cryptocurrencies; Dependency effect; economic policy uncertainty (EPU);
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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