Global economic policy uncertainty and the stability of cryptocurrency returns: The role of liquidity volatility

Pengcheng Zhang, Deli Kong, Kunpeng Xu and Jiayin Qi

Research in International Business and Finance, 2024, vol. 67, issue PB

Abstract: This paper examines the influence of global economic policy uncertainty on the stability of cryptocurrency returns and the moderating role of liquidity volatility. Findings reveal that the stability of cryptocurrency returns is higher when economic policy uncertainty is higher, implying that cryptocurrencies may be perceived as a safe-haven asset against economic policy uncertainty during the sample period. More importantly, investors in the cryptocurrency market perceive liquidity volatility as liquidity risk, and cryptocurrencies will no longer be a safe haven against economic policy uncertainty when liquidity volatility is high. Further research shows that investors tend to ignore the risks associated with liquidity volatility when the stock market is in a fearful mood or the cryptocurrency market is in a greedy mood. Furthermore, during the COVID-19 pandemic, investors became more concerned about liquidity volatility in cryptocurrencies, suggesting a rise in risk aversion.

Keywords: Cryptocurrency; Liquidity volatility; Safe haven; Economic Policy Uncertainty (EPU); Investor sentiment (search for similar items in EconPapers)
JEL-codes: C22 D81 E42 E44 G15 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:67:y:2024:i:pb:s027553192300291x

DOI: 10.1016/j.ribaf.2023.102165

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