Pandemics and cryptocurrencies

Salisu, Afees and Ogbonna, Ahamuefula and Oloko, Tirimisiyu (2020): Pandemics and cryptocurrencies.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: COVID-19; Cryptocurrency; Distributed Lag Model; Pandemic; Uncertainty
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling; G - Financial Economics > G1 - General Financial Markets

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