Abstract
Cryptocurrency literature is increasing rapidly nowadays. Particularly, the role of the cryptocurrency market as a risk management avenue has got the attention of researchers. However, it is an immature asset class and requires gaps in current literature for future research directions. This research provides a systematic review of the vast range empirical literature based on the cryptocurrency market as a risk management avenue against economic policy uncertainty (EPU). The review discovers that cryptocurrencies have mixed connectedness patterns with all national EPU therefore, the risk mitigation ability varies from country to country. The review finds that heterogeneous correlation patterns are due to the dependence of EPU on the policies and decisions usually taken by regulatory authorities of a particular country. Additionally, heterogeneous EPU requires heterogeneous solutions to deal with stock market volatility and economic policy uncertainty in different economies. Likewise, the divergent protocol and administration of currencies in the crypto market consequently vicissitudes the hedging and diversification performance against each economy. Many research lines can benefit investors, policymakers, fund managers, or portfolio managers. Therefore, the authors suggested future research avenues in terms of topics, data frequency, and methodologies.
Highlights
The current focus of researchers is upon exploring a suitable shelter to shield investments, because the current financially integrated world is more sensitive toward economic policy risk than ever before
The study is a systematic review of previous economic policy uncertainty and cryptocurrency market related research
As the traditional hedge gold has been challenged by Bitcoin against global economic policy uncertainty, do other cryptocurrencies behave against Global EPU as hedger, safe-haven, or diversifier?
Summary
The current focus of researchers is upon exploring a suitable shelter to shield investments, because the current financially integrated world is more sensitive toward economic policy risk than ever before No such pandemic and higher uncertain event (including Spanish Flu, Global Financial Crisis, European Debt Crisis) had ever degraded the stock market and plunged EPU as much as COVID-19 continues to tumble. It critically evaluates the findings of previous studies related to the diversification, hedging, and safe haven strands and highlights several limitations It highlights potential avenues for future research in terms of topics, data frequency, and research methodologies. It contributes to the literature of hedging, safe haven, and diversification role of cryptocurrency currencies for economic policy uncertainty.
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