The COVID-19 pandemic, economic policy uncertainty and the hedging role of cryptocurrencies: a global perspective
Muhammad Aftab, Inzamam Ul Haq, Mohamed Albaity
Abstract
Purpose The COVID-19 pandemic has led to global economic policy uncertainty, which has increased the need to investigate ways to mitigate the uncertainty. This study aims to examine the potential of cryptocurrencies as a hedge and safe haven avenue against economic policy uncertainty. Design/methodology/approach This study investigates the behavior of the five leading cryptocurrencies in relation to country-level and group-level economic policy uncertainty indices, as measured by the text-based method developed by Baker et al . ( The Quarterly Journal of Economics , 2016, 131, 1593–1636). The research covers a broad range of emerging and developed economies from July 2013 to September 2020. The study employs the approach of Narayan et al . ( Economic Modelling , 2016, 53, 388–397) to examine the hedging and safe-haven properties of cryptocurrencies. Findings This study finds that the top cryptocurrencies play a hedging role against economic policy uncertainty, with some exceptions. Additionally, there is evidence to support the idea that cryptocurrencies can serve as a safe haven during the COVID-19 pandemic. As a result, investors may benefit from using cryptocurrencies as a risk-management avenue during times of uncertainty. Originality/value This research contributes to the existing literature by testing the cryptocurrencies' hedging and safe haven properties in a new way, by analyzing their lead and lag behaviors using a recent and innovative approach. Additionally, it examines a wide range of emerging and advanced markets, providing insight into the potential of using cryptocurrencies as a risk mitigation avenue.