Cryptocurrencies, stocks, and economic policy uncertainty: A FAVAR analysis

Andrea Civelli and Laura Jackson Young

The North American Journal of Economics and Finance, 2025, vol. 78, issue C

Abstract: We study the interactions between cryptocurrencies, stocks, and U.S. economic policy uncertainty (EPU) using a Factor-Augmented Vector Autoregressive framework, in which return comovements within each asset market are modeled by a single common factor. We document a remarkable heterogeneity across cryptocurrencies, with market fragmentation by functional characteristics of the projects. Through structural impulse-response analysis, we find that: (1) Stock returns positively respond to crypto shocks, but not vice versa; (2) Cryptocurrencies can be used to hedge against U.S. EPU, but display safe-haven characteristics against Chinese EPU. We interpret these results in light of recent crypto investment and pricing models.

Keywords: Cryptocurrencies; Blockchain; Financial markets; Macroeconomic shocks; FAVAR (search for similar items in EconPapers)
JEL-codes: E44 F3 G1 G11 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:78:y:2025:i:c:s1062940825000452

DOI: 10.1016/j.najef.2025.102405

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