The impact of regulation on cryptocurrency market volatility in the context of the COVID-19 pandemic — evidence from China

Pengcheng Zhang, Kunpeng Xu and Jiayin Qi

Economic Analysis and Policy, 2023, vol. 80, issue C, 222-246

Abstract: This paper aims to examine the impact of regulatory policies on cryptocurrency market volatility in the context of the COVID-19 pandemic. We find that price volatility, liquidity volatility, and return volatility in the cryptocurrency market increased significantly following regulatory announcements by Chinese policymakers targeting the cryptocurrency industry, and this effect was more pronounced during the COVID-19 pandemic. It indicates that investors are paying a great deal of attention to such events. Yet further findings suggest that as the risk of pandemic transmission increases and stock market returns decline, investor response to regulation decreases. Our findings also suggest that while regulation typically brings market volatility in cryptocurrencies, the release of regulatory policies can instead be beneficial to the stability of the cryptocurrency market when investors are in an highly greedy mood.

Keywords: Cryptocurrency; Regulatory policy; Market volatility; COVID-19; Investor sentiment (search for similar items in EconPapers)
JEL-codes: E42 E44 G14 G18 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:80:y:2023:i:c:p:222-246

DOI: 10.1016/j.eap.2023.08.015

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