Economic Policy Uncertainty and Cryptocurrency Market as a Risk Management Avenue: A Systematic Review
Abstract
:1. Introduction
2. Material and Methods
3. Review of Related Research
3.1. Development of Cryptocurrency Market
3.2. EPU Index as a Risk Measure
3.3. Cryptocurrencies as Risk Management Avenue for Economic Policy Uncertainty
3.3.1. Role of Cryptocurrencies for Country EPUs
3.3.2. Role of Cryptocurrencies for Global EPU
4. Conclusions
Future Research Avenues
Author Contributions
Funding
Data Availability Statement
Acknowledgments
Conflicts of Interest
1 | FRBP stands for Federal Reserve Bank of Philadelphia who proposed another measure for policy uncertainty exhibited USA’s economic uncertainty worsening in recent past (Al-Thaqeb and Ghanim 2019). |
2 | VIX stands for Volatility Index formed by CBOE (Chicago Boards Options Exchange). |
3 | SPX is the abbreviation of (Standard and Poor Index); both are considered as fear-gauge. |
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Authors | EPU Index | |
---|---|---|
1 | Baker et al. (2016) | USA, Brazil, Canada, Australia, France, India, Germany, United Kingdome, South Korea, Russia, Mexico, Italy, and Europe. |
2 | Algaba et al. (2020) | Belgium |
3 | Cerda et al. (2018) | Chile |
4 | Baker et al. (2013) | China |
5 | Gil and Silva (2018) | Columbia |
6 | Sorić and Lolić (2017) | Croatia |
7 | Hardouvelis et al. (2018) | Greece |
8 | Zalla (2017) | Ireland |
9 | Luk et al. (2017) | Hong Kong |
10 | Arbatli et al. (2019) | Japan |
11 | Kroese et al. (2015) | Netherlands |
12 | Choudhary et al. (2020) | Pakistan |
13 | Davis (2016) | Global and Singapore |
14 | Ghirelli et al. (2019) | Spain |
15 | Armelius et al. (2017) | Sweden |
No | Title | Authors & Year | Reason | Employed Methodology | Frequency | Data Source | Data Coverage | Findings |
---|---|---|---|---|---|---|---|---|
1 | Policy uncertainty and Bitcoin returns | (Shaikh 2020) | Bitcoin returns and EPU, MPU and VIX | Quantile Regression and Marko Regime-Switching | Monthly/Daily | www.coindesk.com www.policyuncertainity.com | 2010–2018 | Bitcoin return’s responsiveness to EPU |
2 | Gold & Bitcoin as a hedge again EPU | (Wu et al. 2019) | Hedge and safe-haven | GARCH Model and Quantile Regression | Daily | www.investing.com www.policyuncertainity.com | 2012–2018 | Gold and Bitcoin are not strong hedge and safe-haven |
3 | Measuring risk spillover from EPU to Bitcoin | (Wang et al. 2019a) | Risk Spillover | Multivariate Quantiles Model & Granger Causality Test | Daily | www.coindesk.com www.policyuncertainity.com | 2010–2018 | Negligible risk spillover from EPU to Bitcoin |
4 | Does EPU predicts the Bitcoin returns. | (Demir et al. 2018) | Predictive Power of EPU on Bitcoin returns | OLS and QQ Regression | Daily | www.coindesk.com www.policyuncertainity.com | 2010–2017 | EPU holds strong Predictive power on Bitcoin Returns |
5 | Is Bitcoin a new egg in the basket? | (Qin et al. 2021) | Risk mitigation role of Bitcoin | Granger Causality Test | Monthly | www.yahoofinance.com www.policyuncertainity.com | 2010–2019 | Mixed (positive/negative) impact on Bitcoin returns |
6 | EPU and Cryptocurrency returns | (Cheng and Yen 2020) | Risk management and responsiveness | Predictive Regression Model | Daily | www.coinmarketcap.com www.policyuncertainity.com | 2014–2019 | Positive association between Chinese EPU and Cryptocurrency market |
7 | Uncertainty predict cryptocurrency returns | (Koumba et al. 2020) | EPU impact of Cryptocurrency returns in financial crisis Risk Management | D-Vine Copula | Daily | www.coingeko.com www.policyuncertainity.com | 2015–2018 | Ethereum is better hedge in cryptocurrency market |
8 | Cryptocurrency volatility, hedging effectiveness and EPU | (Fang et al. 2019) | Long-run global volatility hedging | GARCH-MIDAS | Monthly | www.coindesk.com www.policyuncertainity.com | 2010–2018 | EPU as a source of plunged volatility in Bitcoin market |
9 | Cryptocurrency and downsize risk | (Bouri et al. 2019) | Diversifier role of Bitcoin | DCC-GARCH Model | Daily | www.coinmarketcap.com www.datastream.com | 2015–2018 | Bitcoin, Ethereum and Litecoin are hedge. |
10 | Global financial stress and Bitcoin returns | (Bouri et al. 2018) | Bitcoin return Predictability | Copula based Model Granger Causality Cross-Quantilogram | Daily | www.coindesk.com | 2010–2017 | Right tail dependence between uncertainty and Bitcoin |
11 | Bitcoin and major stock indexes | (Bouri et al. 2017c) | Bitcoin as a hedge and safe0haven | DCC-GARCH Model | Daily/weekly | www.datastream.com | 2011–2015 | Strong safe-haven properties of Bitcoin in Asia |
12 | Linkage of Bitcoin and Commodities | (Bouri et al. 2017b) | Bitcoin as Hedge, Safe-haven and Diversifier | DCC-GARCH Model | Daily | www.coindesk.com | 2010–2015 | Hedge and safe-haven in Pre-Bitcoin price crash and diversifier in post-period |
13 | Bitcoin and Global EPU | (Bouri et al. 2017d) | Hedging properties of Bitcoin | Wavelet Quantile-on-Quantile approach | Daily | www.coindesk.com www.datastream.com | 2011–2016 | Bitcoin is a hedge against global uncertainty |
14 | Volatility and cryptocurrency return relationship | (Bouri et al. 2017a) | Co-Movements and hedging | Asymmetric GARCH Model | Daily | wwwbitstamp.com | 2011–2016 | No Asymmetric return volatility relationship |
15 | Predicting Bitcoin returns | (Bouri and Gupta 2019) | New-based and internet search-based EPU measures predictability | EGARCH | Monthly | www.cryptocompare.com www.policyuncertainty.com | 2010–2019 | Bitcoin works as hedge against both measures. |
16 | Bitcoin and international indices | (Wang et al. 2019b) | Hedge and safe-haven properties | DCC-GARCH | Daily | www.coinmarketcap.com | 2013–2018 | Cryptocurrencies are more safe-haven than a hedge |
17 | EPU and Bitcoin Investment | (Al Mamun et al. 2020) | Impact of EPU on securities correlation patterns | DCC-GJR-GARCH | Daily | www.coindesk.com | 2010–2016 | EPU and GPU hold strong impact during unfavorable economic and financial periods |
18 | Bitcoin prices crash and EPU association | (Kalyvas et al. 2020) | EPU risk hedging | NCSKEW & DUVOL | Daily/Intra-day | www.bitcoincharts.com | 2011–2018 | Bitcoin can hedge EPU risks |
19 | Trade and Economic uncertainties and Bitcoin return | (Bouri et al. 2020a) | Hedging the TPU and EPU | Realized volatility Linear regression | Monthly | www.bitstamp.net | 2011–2019 | Bitcoin proves as hedge and diversifier |
20 | Effect of political and economic uncertainty on Cryptocurrency market | (Colon et al. 2021) | Hedging and risk management | OLS regression | Monthly | www.coinmarketcap.com www.policyuncertainty.com | 2013–2019 | Cryptocurrencies are strong hedge against GPU and weak against EPU |
21 | Conditional beta and uncertainty factory in cryptocurrency pricing model | (Nguyen 2020) | Pricing Model of cryptocurrency | Two-Pass Regression | Daily | www.coinmarketcap.com www.policyuncertainty.com | 2016–2020 | Conditional beta is better than unconditional beta |
22 | Role of uncertainty in predicting the long-term cryptocurrency volatility | (Fang et al. 2020) | Hedging ability and impact of uncertainty measures on cryptocurrency volatility | GARCH-MIDAS | Daily & Monthly | www.coinmarketcap.com www.policyuncertainty.com | 2013–2019 | NVIX is more important than GEPU. Works as a hedge against NVIX and S & P 500. |
23 | Effect of information asymmetry on investment in cryptocurrency market | (Park and Chai 2020) | Influence of information asymmetry on investment behavior | Probability of informed trading & Vector Error Correction model | Daily | www.coinmarketcap.com www.policyuncertainty.com | 2015–2019 | Investor’s decision making is based on sentiment rather than information about cryptocurrencies. |
24 | Influence of EPU on the linkage between conventional assets and Bitcoin | (Matkovskyy et al. 2020) | Correlation patterns for hedging | EWMA Models GAS Model | Daily & Monthly | www.bitstamp.net www.policyuncertainty.com | 2015–2018 | Bitcoin is a hedging instrument against US EPU |
25 | Investors’ sentiment and cryptocurrency market | (Nie et al. 2020) | Sentiment and cryptocurrency volatility | Multiple regression models | Monthly | www.coinmarketcap.com | 2014–2018 | High sentiment high trading and lower sentiment lower trading |
26 | Cryptocurrency as a financial asset | (Ariefianto 2020) | Is cryptocurrency really a financial asset class? | Multiple Regression | Monthly | www.ppolicyuncertainty.com www.yahoofinance.com | 2014–2020 | Notion of cryptocurrency as financial asset is spurious |
27 | EPU and Cryptocurrency Returns | (Cheema et al. 2020) | Predictive power of EPU toward Cryptocurrency returns | OLS, Augmented regression Quantile regression | Monthly | www.coinmarketcap.com www.policyuncertainty.com | 2013–209 | Cryptocurrencies cannot be a hedge or safe-haven during higher risky periods. |
28 | Non-linear Linkage EPU and Cryptocurrencies | (Papadamou et al. 2021) | Non-linear linage | Non-parametric quantile and Granger causality test | Daily | www.coinmarketcap.com www.policyuncertainty.com | 2017–2019 | Cryptocurrencies are tightly connected with EPU in both Bearish and Bullish Market |
29 | EPU and Bitcoin returns (volatility) | (Paule-Vianez et al. 2020) | Is Bitcoin a safe-have asset? | Linear regression with OLS | Daily | www.investing.com www.policyuncertainty.com | 2010–2019 | Identical to gold thus, safe-haven. |
30 | Influence of EPU on Cryptocurrency Market | (Wu et al. 2021) | Risk management and hedging | Rolling Window Approach Granger Causality Test | Daily | www.policyuncertainty.com www.yahoofinance.com | 2015–2020 | Positive association between Twitter based uncertainty and Cryptocurrencies |
31 | EPU and Bitcoin-US stocks nexus | (Mokni et al. 2020) | Impact EPU on the correlation of Bitcoin and US stocks | DCC-EGARCH | Daily | www.coinmarketcap.com www.policyuncertainty.com | 2014–2020 | Mixed diversification properties with US stocks |
32 | Cryptocurrencies and policy uncertainty | (Hasan et al. 2021) | Risk management | OLS Quantile regression Quantile on Quantile regression | Weekly | www.investing.com https://brianmlucey.wordpress.com | 2013–2021 | Do not act as a hedge or safe-haven |
33 | Impact of EPU on Cryptocurrencies | (Wu et al. 2021) | Hedging properties and responsiveness to EPU shocks | Granger Causality test | Daily | www.yahoofinance.com www.economicpolicyuncertainity.com | 2015–2020 | Bitcoin, Ripple, and Ethereum act as a hedge. |
34 | Impact of EPU on Bitcoin returns and volatility | (Mokni 2021) | Portfolio diversification, Hedge, and safe-haven properties | symmetric and asymmetric causality quantiles | Monthly | www.economicpolicyuncertainity.com www.coinmarketcap.com | 2010–2019 | EPU improves Bitcoin returns in most countries. |
35 | Cryptocurrency uncertainty index | (Lucey et al. 2021) | Co-movement between risk proxies | Pearson correlation | Monthly | new source introduced | 2014–2021 | Positive co-movements between uncertainty measures. |
36 | EPU and Cryptocurrency volatility | (Yen and Cheng 2021) | Risk management and responsiveness | Stochastic volatility Model | Monthly | www.coinmarketcap.com www.policyuncertainity.com | 2014–2019 | Negative association between Chinese EPU and Cryptocurrency market volatility |
37 | Impact of EPU on the cryptocurrency market | (Colon et al. 2021) | Risk mitigate and hedging properties | OLS regression | month | www.economicpolicyuncertainity.com www.coinmarketcap.com | 2013–2019 | Strong and week hedge and safe-haven EPU and geopolitical risk |
38 | Cryptocurrency and policy uncertainty | (Foglia and Dai 2021) | Spillover and risk mitigation | Time-varying parameter vector autoregression | Monthly | www.economicpolicyuncertainity.com | 2013–2019 | EPU predicts cryptocurrency uncertainty |
39 | EPU and Bitcoin returns during COVID-19 | (Chen et al. 2021) | Risk mitigation and hedging properties | Predictive Model (OLS-GQS generalized quantile regression) | Daily | www.economicpolicyuncertainity.com | 2019–2020 | Bitcoin is a hedge for EPU risk. |
40 | Connectedness among EPU, precious metals, and Bitcoin | (Fasanya et al. 2021) | Risk mitigation and hedging and safe properties | Non-parametric quintile approach Dynamic spillover | Daily | www.economicpolicyuncertainity.com www.investing.com | 2010–2020 | Both precious metals and Bitcoin do not act as a hedge or safe haven. |
41 | EPU and Digital currencies | (Kyriazis 2021) | Hedging, safe-haven, and diversifier properties | ARCH Model | Daily | www.economicpolicyuncertainity.com www.coinmarketcap.com | 2017–2020 | Litecoin and Ethereum are diversifiers for Bitcoin and Bitcoin is a safe haven and hedge for EPU. |
42 | Connectedness between Cryptocurrency and EPU | (Jiang et al. 2021) | Hedging and risk management | Quantile cross-spectral | Daily | www.economicpolicyuncertainity.com www.coingeko.com | 2015–2020 | Cryptocurrencies act as a hedge for higher-EPU but not in moderate or low EPU. |
43 | Cryptocurrencies and EPU | (Rubbaniy et al. 2021) | Safe-haven properties | Wavelet coherence analysis | Daily | www.economicpolicyuncertainity.com www.coinmarketcap.com | 2019–2021 | Cryptocurrencies are safe-haven |
44 | Bitcoin and EPU during COVID-19 | (Raheem 2021) | Safe-haven properties of Bitcoin | OLS regression | Daily | www.economicpolicyuncertainity.com www.coindesk.com | 2019–2020 | Bitcoin act as a safe haven during COVID-19 |
No. | Data Frequencies | Number of Studies | % |
---|---|---|---|
1 | Daily | 25 | 56.82% |
2 | Monthly | 13 | 29.55% |
3 | Daily/Intra-day | 1 | 2.27% |
4 | Monthly/Daily | 3 | 6.82% |
5 | Weekly | 1 | 2.27% |
6 | Daily/weekly | 1 | 2.27% |
N | 44 | 100% |
No. | Sources | Number of Studies |
---|---|---|
1 | www.Coindesk.com | 9 |
2 | www.Coinmarketcap.com | 17 |
3 | www.Investing.com | 4 |
4 | www.Yahoofinance.com | 4 |
5 | www.Bitstamp.net | 3 |
6 | www.Datastream.com | 3 |
7 | www.Coingeko.com | 2 |
8 | Others source for crypto data | 4 |
9 | www.Policyuncertainity.com | 32 |
Numbers | Gaps |
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1 | Topics and objectives |
| |
2 | Research methodologies |
| |
3 | Data Coverage and frequency |
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Share and Cite
Haq, I.U.; Maneengam, A.; Chupradit, S.; Suksatan, W.; Huo, C. Economic Policy Uncertainty and Cryptocurrency Market as a Risk Management Avenue: A Systematic Review. Risks 2021, 9, 163. https://doi.org/10.3390/risks9090163
Haq IU, Maneengam A, Chupradit S, Suksatan W, Huo C. Economic Policy Uncertainty and Cryptocurrency Market as a Risk Management Avenue: A Systematic Review. Risks. 2021; 9(9):163. https://doi.org/10.3390/risks9090163
Chicago/Turabian StyleHaq, Inzamam Ul, Apichit Maneengam, Supat Chupradit, Wanich Suksatan, and Chunhui Huo. 2021. "Economic Policy Uncertainty and Cryptocurrency Market as a Risk Management Avenue: A Systematic Review" Risks 9, no. 9: 163. https://doi.org/10.3390/risks9090163