Gauging Demand for Cryptocurrency over the Economic Policy Uncertainty and Stock Market Volatility

Emon Kalyan Chowdhury () and Mohammad Nayeem Abdullah
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Emon Kalyan Chowdhury: Chittagong Independent University
Mohammad Nayeem Abdullah: Chittagong Independent University

Computational Economics, 2024, vol. 64, issue 1, No 2, 37-55

Abstract: Abstract This paper analyzes the response of cryptocurrency returns to the movement of economic policy uncertainty (EPU) and stock market volatility (VIX), as well as a few macroeconomic variables: gold price, interest rate, inflation rate, and oil price. Vector error correction model and regression model are applied to examine the linkage between these variables using data from 2015 to 2022. The analysis reveals that the selected variables have a positive and significant impact on cryptocurrency returns. This suggests that cryptocurrency can be considered a safe haven for investment. The paper also suggests a number of policies to ensure the protection of investment, control money supply and stock market instability, stabilize economic uncertainty, and systematize economic variables. This paper advocates a well-connected network and active participation of stakeholders such as government, central bank, security exchange, and financial institutions will help to streamline irrational movements and enhance the acceptability of cryptocurrencies through the framing and implementation of necessary regulations.

Keywords: Investment; EPU; Cryptocurrencies; Volatility; Hedge; VECM (search for similar items in EconPapers)
JEL-codes: C23 D81 E02 G15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10614-023-10423-1

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