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Economic Policy Uncertainty And The Bitcoin Market: An Investigation In The Covid-19 Pandemic With Transfer Entropy

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Listed:
  • TOAN LUU DUC HUYNH

    (Chair of Behavioral Finance, WHU – Otto Beisheim School of Management, Germany†School of Banking, University of Economics Ho Chi Minh City, Vietnam)

  • MEI WANG

    (Chair of Behavioral Finance, WHU – Otto Beisheim School of Management, Germany)

  • VINH XUAN VO

    (��Institute of Business Research and CFVG Ho Chi Minh City, University of Economics Ho Chi Minh City, Vietnam)

Abstract

This paper investigates the prediction power of economic policy uncertainty on Bitcoin trading (return, volume, and volatility) over the period from May 2013 to June 2019. We employ the Transfer Entropy model with the following two different regimes (i) stationary and (ii) nonstationary assumption. We construct different algorithm calculations for returns, volume and volatility to test how this proxy impacts. We find that the global Economic Policy Uncertainty negatively causes Bitcoin volumes and volatilities. Therefore, under uncertain regimes, investors are risk-averse to trade, which makes the market less volatile. Our findings confirm the existence of pessimistic risk premium, the theory of deteriorating liquidity and the widen bid-ask spread, which lead to a decline in trading volume under uncertainties in the Bitcoin market. By using different reliable data sources as well as expanding timeframe until May 2020 with COVID-19 pandemic, our results remain robust. Hence, the practical implications will be the useful tools for different parties in the Bitcoin market in the financial turbulence context.

Suggested Citation

  • Toan Luu Duc Huynh & Mei Wang & Vinh Xuan Vo, 2025. "Economic Policy Uncertainty And The Bitcoin Market: An Investigation In The Covid-19 Pandemic With Transfer Entropy," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 70(03), pages 647-673, June.
    • Handle: RePEc:wsi:serxxx:v:70:y:2025:i:03:n:s0217590821500119
    DOI: 10.1142/S0217590821500119
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    More about this item

    Keywords

    Economic policy uncertainty (EPU); Bitcoin; transfer entropy; COVID-19;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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