The role of uncertainty index in forecasting volatility of Bitcoin: Fresh evidence from GARCH-MIDAS approach

Yufei Xia, Chong Sang, Lingyun He and Ziyao Wang

Finance Research Letters, 2023, vol. 52, issue C

Abstract: We shed light on the role of Economic Policy Uncertainty (EPU) and Cryptocurrency Uncertainty (UCRY) indices in forecasting Bitcoin volatility. The empirical results of in-sample estimations demonstrate that the global EPU index and UCRY indices exhibit significantly negative and positive effects on long-term Bitcoin volatility, respectively. Moreover, the out-of-sample validation reveals that One-Side Asymmetric GARCH-MIDAS with UCRY price index is the best-performing model and forecasting models incorporating the UCRY indices significantly outperform models with global and national EPUs in out-of-sample forecasting. Considering its scarce application, UCRY indices become a promising data source in guiding Bitcoin trading behaviors.

Keywords: Volatility; Economic policy uncertainty; Cryptocurrency uncertainty; Cryptocurrency; Bitcoin; GARCH-MIDAS (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322005682

DOI: 10.1016/j.frl.2022.103391

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