Effects of economic policy uncertainty shocks on the interdependence between Bitcoin and traditional financial markets

Roman Matkovskyy (1) , Akanksha Jalan (1) , Michael Dowling (1)

1 ESC [Rennes] - ESC Rennes School of Business

This paper analyses the effects of economic policy uncertainty (hereafter, EPU) on the relationshipbetween Bitcoin and traditional financial markets during the period 27/04/2015 to 25/10/2018, rep-resented by five stock market indices namely the NASDAQ100, S&P500, Euronext100, FTSE100 andNIKKEI225. EPU is measured in terms of economic policy, monetary policy, financial regulation, taxationpolicy, and the news-based policy uncertainty index for the U.S., U.K., Europe and Japan. By apply-ing a variety of statistical techniques (multivariate EWMA models, Spearman’s rho, the Diebold andYilmaz (2012) spill-over index, GAS models with conditional multivariate Student–t distribution andtime–varying scales and correlations, BVAR models with the Litterman/ Minnesota priors and nonlinearimpulse responses with local projections accounting for different regimes in uncertainty) we estimateinterdependence between traditional financial and Bitcoin markets and their reaction to the selectedpolicy shocks. Our findings indicate the investment attractiveness of bitcoin as a hedging tool againstshocks in uncertainty in the USA economic policy.The results are significant and potentially useful to researchers, practitioners, and Bitcoin market par-ticipants to better understand the nature of Bitcoin and facilitate better portfolio and risk-managementdecisions.

Mots clés: Bitcoin; Financial market; Interdependence; Policy uncertainty; Dynamic copula; BVAR

Domaines: Economies et finances

Roman Matkovskyy, Akanksha Jalan, Michael Dowling. Effects of economic policy uncertainty shocks on the interdependence between Bitcoin and traditional financial markets. 2020, 77, pp.150-155. ⟨10.1016/j.qref.2020.02.004⟩. ⟨hal-03004707⟩