ECONOMIC POLICY UNCERTAINTY AND THE BITCOIN MARKET: AN INVESTIGATION IN THE COVID-19 PANDEMIC WITH TRANSFER ENTROPY

Toan Luu Duc Huynh, Mei Wang and Vinh Xuan Vo
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Toan Luu Duc Huynh: Chair of Behavioral Finance, WHU – Otto Beisheim School of Management, Germany†School of Banking, University of Economics Ho Chi Minh City, Vietnam
Mei Wang: Chair of Behavioral Finance, WHU – Otto Beisheim School of Management, Germany
Vinh Xuan Vo: ��Institute of Business Research and CFVG Ho Chi Minh City, University of Economics Ho Chi Minh City, Vietnam

The Singapore Economic Review (SER), 2025, vol. 70, issue 03, 647-673

Abstract: This paper investigates the prediction power of economic policy uncertainty on Bitcoin trading (return, volume, and volatility) over the period from May 2013 to June 2019. We employ the Transfer Entropy model with the following two different regimes (i) stationary and (ii) nonstationary assumption. We construct different algorithm calculations for returns, volume and volatility to test how this proxy impacts. We find that the global Economic Policy Uncertainty negatively causes Bitcoin volumes and volatilities. Therefore, under uncertain regimes, investors are risk-averse to trade, which makes the market less volatile. Our findings confirm the existence of pessimistic risk premium, the theory of deteriorating liquidity and the widen bid-ask spread, which lead to a decline in trading volume under uncertainties in the Bitcoin market. By using different reliable data sources as well as expanding timeframe until May 2020 with COVID-19 pandemic, our results remain robust. Hence, the practical implications will be the useful tools for different parties in the Bitcoin market in the financial turbulence context.

Keywords: Economic policy uncertainty (EPU); Bitcoin; transfer entropy; COVID-19 (search for similar items in EconPapers)
JEL-codes: C32 D81 G10 G15 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S0217590821500119

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