Pandemics and cryptocurrencies

Afees Salisu, Ahamuefula Ogbonna and Tirimisiyu Oloko

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines the effect of a pandemic-induced uncertainty on cryptocurrencies (specifically, Bitcoin, Ethereum and Ripple). It employs a predictive model by Westerlund and Narayan (2012, 2015) to examine the predictability of a pandemic-induced uncertainty as a predictor, as well as the forecast performance of our predictive model for cryptocurrency returns. We examine the role of asymmetry in uncertainty and the sensitivity of our results to alternative measures of uncertainty due to pandemics, using the recently developed Global Fear Index (GFI) by Salisu and Akanni (2020). Our results indicate that cryptocurrencies could act as hedge against uncertainty due to pandemics, albeit with reduced hedging effectiveness in the COVID-19 period. Accounting for asymmetry is found to improve the predictability and forecast performance of the model, which indicates that failure to account for asymmetry in modeling the effect of a pandemic-induced uncertainty on cryptocurrency may lead to incorrect conclusion. The results seem to be sensitive to the choice of measure of pandemic-induced uncertainty.

Keywords: COVID-19; Cryptocurrency; Distributed Lag Model; Pandemic; Uncertainty (search for similar items in EconPapers)
JEL-codes: C5 G1 (search for similar items in EconPapers)
Date: 2020-07-12
New Economics Papers: this item is included in nep-fmk, nep-isf, nep-mon, nep-pay and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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