The time-varying correlation between cryptocurrency policy uncertainty and cryptocurrency returns
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Dosyalar
Tarih
2022
Yazarlar
Dergi Başlığı
Dergi ISSN
Cilt Başlığı
Yayıncı
Emerald Group Publishing Ltd
Erişim Hakkı
info:eu-repo/semantics/closedAccess
Özet
Purpose This study aims to analyze the time-varying correlation between the cryptocurrency policy uncertainty (UCRY Policy) and cryptocurrency returns. More specifically, it analyzes whether these correlations vary according to the uncertainty attributable to salient events such as China banning ICOs, cryptocurrency exchanges attacks, Coronavirus (Covid-19) pandemic crisis and the United States (U.S.) Security and Exchange Commission's (SEC's) announcement about Ripple. Design/methodology/approach To measure the dynamic relationship, it uses the dynamic conditional correlation (DCC) model of Engle (2002) to consider time variation in UCRY Policy and cryptocurrency returns. The data set encompasses the weekly frequency data of the UCRY Policy and Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Ripple (XRP), Stellar (XLM), Dash (DASH), Monero (XMR) from 4 September 2016, to 21 February 2021. Findings Empirical findings indicate that the correlations between the UCRY Policy and the BTC, ETH, LTC, XRP, XLM, DASH and XMR returns are consistently negative. Thus, an increase in the volatility of the UCRY Policy can lead to a decrease in volatility for BTC, ETH, LTC, XRP, XLM, DASH and XMR returns. Besides, these findings indicate that the estimated DCC is not only time-varying but also substantially responsive to salient events, such as China banning ICOs, cryptocurrency exchanges attacks, the Covid-19 pandemic crisis and SEC's announcement about Ripple. Besides, empirical findings show that cryptocurrency returns are adversely impacted by UCRY Policy during the salient events (China bans ICOs, the hack of cryptocurrency exchanges, Covid-19 crisis), suggesting their failure to act as a hedge or safe-haven asset. Originality/value To the best of the author's knowledge, this study investigates the time-varying correlation between UCRY Policy and cryptocurrency returns. Besides, this study may be useful for new studies and fill a gap in the finance literature, due to the limited number of studies on the UCRY Policy in the finance literature.
Açıklama
Anahtar Kelimeler
Cryptocurrencies, Cryptocurrency policy uncertainty, DCC-GARCH, C22, D80, G19
Kaynak
Studies in Economics and Finance
WoS Q Değeri
N/A
Scopus Q Değeri
Q1
Cilt
39
Sayı
2
