Correlation between geopolitical risk, economic policy uncertainty, and Bitcoin using partial and multiple wavelet coherence in P5 + 1 nations

Abstract

This study analyses the time–frequency relationship between economic policy uncertainty (EPU), geopolitical risk (GPR), and Bitcoin returns in China, France, Russia, the UK, the US, and Germany. Bi-wavelet, partial wavelet, and multiple wavelet coherence (MWC) analyses are employed to examine the co-movements between these variables on monthly data from July, 2016, to June, 2021. The empirical findings reveal (i) strong interdependence between EPU, GPR, and Bitcoin returns in short- and long-terms in most countries, as inferred from MWC analysis. (ii) There is evidence of strong short-term co-movements between GPR and EPU, with GPR leading. The results of partial wavelet analysis imply that the two are positively correlated for most countries and Bitcoin returns have no significant impact on their co-movement. (iii) The results of bi-wavelet coherence analyses show strong positive connectedness in the short term between all pairs of EPU, GPR, and Bitcoin returns in most countries analyzed.