Abstract
This paper analyses the effects of the Chinese Economic Policy Uncertainty (CEPU) index on the daily returns of Bitcoin for the period from December 31, 2019 to May 20, 2020. Utilizing the Ordinary Least Squares (OLS) and the Generalized Quantile Regression (GQR) estimation techniques, the paper illustrates that the current CEPU has a positive impact on the returns of Bitcoin. However, the positive impact is statistically significant only at the higher quantiles of the current CEPU. It is concluded that Bitcoin can be used in hedging against policy uncertainties in China since significant rises in uncertainty leads to a higher return in Bitcoin.JEL Codes: G32; G15; C22
Highlights
The Global Financial Crisis ( GFC) of 2008-09 destabilized the economic and financial stability of economies around the world and created high uncertainty about future economic security across the globe
The purpose of this study is to analyze the effects of the index of the Chinese Economic Policy Uncertainty (CEPU) on the daily returns of Bitcoin, considering the COVID-19time period when uncertainty related to economic policy is higher
Since the empirical literature examining the relationship between global economic policy uncertainty and Bitcoin returns is an under-researched area of study, this study aims at investigating the role of Bitcoin to act as a hedging tool against economic policy uncertainty by considering the uncertainty caused by COVID-19 era in source country (China)
Summary
The Global Financial Crisis ( GFC) of 2008-09 destabilized the economic and financial stability of economies around the world and created high uncertainty about future economic security across the globe. During the GFC of 2008-09, Nakamoto [1] launched Bitcoin as an alternative to traditional currencies, which emerged as the most popular secure digital currency. Corbet et al [7] and Ji et al [8] show that Bitcoin is independent of conventional assets and global financial system. During times of economic and financial instability, investors withdraw their investment from traditional financial assets (like bonds, stocks etc.) to reinvest in Bitcoin to secure positive returns [9,10,11,12]. Initially introduced as an alternative to traditional currency, Bitcoin quickly emerged as a lucrative investment asset against conventional assets, so-termed Bitcoin as a “digital gold” [13]
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