The COVID-19 pandemic, economic policy uncertainty and the hedging role of cryptocurrencies: a global perspective

Muhammad Aftab, Inzamam Ul Haq and Mohamed Albaity

China Finance Review International, 2023, vol. 13, issue 3, 471-508

Abstract: Purpose - The COVID-19 pandemic has led to global economic policy uncertainty, which has increased the need to investigate ways to mitigate the uncertainty. This study aims to examine the potential of cryptocurrencies as a hedge and safe haven avenue against economic policy uncertainty. Design/methodology/approach - This study investigates the behavior of the five leading cryptocurrencies in relation to country-level and group-level economic policy uncertainty indices, as measured by the text-based method developed by Bakeret al. (The Quarterly Journal of Economics, 2016, 131, 1593–1636). The research covers a broad range of emerging and developed economies from July 2013 to September 2020. The study employs the approach of Narayanet al. (Economic Modelling, 2016, 53, 388–397) to examine the hedging and safe-haven properties of cryptocurrencies. Findings - This study finds that the top cryptocurrencies play a hedging role against economic policy uncertainty, with some exceptions. Additionally, there is evidence to support the idea that cryptocurrencies can serve as a safe haven during the COVID-19 pandemic. As a result, investors may benefit from using cryptocurrencies as a risk-management avenue during times of uncertainty. Originality/value - This research contributes to the existing literature by testing the cryptocurrencies' hedging and safe haven properties in a new way, by analyzing their lead and lag behaviors using a recent and innovative approach. Additionally, it examines a wide range of emerging and advanced markets, providing insight into the potential of using cryptocurrencies as a risk mitigation avenue.

Keywords: COVID-19; Economic policy uncertainty; Cryptocurrency; Hedging (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:cfripp:cfri-06-2022-0108

DOI: 10.1108/CFRI-06-2022-0108

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