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Does bitcoin hedge against the economic policy uncertainty: based on the continuous wavelet analysis

Author

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  • Yuxin Cai
  • Zeqi Zhu
  • Qi Xue
  • Xinyu Song

Abstract

This article aims to test a causal nexus between bitcoin market and economic policy uncertainty. We use the continuous wavelet analysis to investigate lead-lag relationship between bitcoin market and economic policy uncertainty in different time-frequency domains. Our findings show the negative relationship between bitcoin returns and economic policy uncertainty around the period of bitcoin’s currency recognition and COVIC-19 pandemic crisis both daily and monthly time series test. Furthermore, we find that the causality relationship between bitcoin and economic policy uncertainty is relatively indistinct around the period of bitcoin’s currency recognition, while bitcoin returns are leading economic policy uncertainty changes during COVID-19 pandemic crisis, indicating the economic policy uncertainty fluctuation trend can refer to the fluctuation of bitcoin, bitcoin can be viewed as a leading indicator, but it could not be employed as a safe-haven asset hedge against uncertainty during the period of COVID-19 pandemic.

Suggested Citation

  • Yuxin Cai & Zeqi Zhu & Qi Xue & Xinyu Song, 2022. "Does bitcoin hedge against the economic policy uncertainty: based on the continuous wavelet analysis," Journal of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 983-996, December.
  • Handle: RePEc:taf:recsxx:v:25:y:2022:i:1:p:983-996
    DOI: 10.1080/15140326.2022.2072674
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    Cited by:

    1. Aharon, David Y. & Butt, Hassan Anjum & Jaffri, Ali & Nichols, Brian, 2023. "Asymmetric volatility in the cryptocurrency market: New evidence from models with structural breaks," International Review of Financial Analysis, Elsevier, vol. 87(C).
    2. Ştefan Cristian Gherghina & Liliana Nicoleta Simionescu, 2023. "Exploring the asymmetric effect of COVID-19 pandemic news on the cryptocurrency market: evidence from nonlinear autoregressive distributed lag approach and frequency domain causality," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-58, December.

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