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Does economic policy uncertainty predict the Bitcoin returns? An empirical investigation

Author

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  • Demir, Ender
  • Gozgor, Giray
  • Lau, Chi Keung Marco
  • Vigne, Samuel A.

Abstract

This paper analyzes the prediction power of the economic policy uncertainty (EPU) index on the daily Bitcoin returns. Using the Bayesian Graphical Structural Vector Autoregressive model as well as the Ordinary Least Squares and the Quantile-on-Quantile Regression estimations, the paper finds that the EPU has a predictive power on Bitcoin returns. Fundamentally, Bitcoin returns are negatively associated with the EPU. However, the effect is positive and significant at both lower and higher quantiles of Bitcoin returns and the EPU. In the light of these findings, the paper concludes that Bitcoin can serve as a hedging tool against uncertainty.

Suggested Citation

  • Demir, Ender & Gozgor, Giray & Lau, Chi Keung Marco & Vigne, Samuel A., 2018. "Does economic policy uncertainty predict the Bitcoin returns? An empirical investigation," Finance Research Letters, Elsevier, vol. 26(C), pages 145-149.
    • Handle: RePEc:eee:finlet:v:26:y:2018:i:c:p:145-149
    DOI: 10.1016/j.frl.2018.01.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin; Cryptocurrencies; Economic policy uncertainty; Bayesian graphical model; Structural vector autoregressive; Quantile-on-quantile regression;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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