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Pandemics and cryptocurrencies

Author

Listed:
  • Salisu, Afees
  • Ogbonna, Ahamuefula
  • Oloko, Tirimisiyu

Abstract

This study examines the effect of a pandemic-induced uncertainty on cryptocurrencies (specifically, Bitcoin, Ethereum and Ripple). It employs a predictive model by Westerlund and Narayan (2012, 2015) to examine the predictability of a pandemic-induced uncertainty as a predictor, as well as the forecast performance of our predictive model for cryptocurrency returns. We examine the role of asymmetry in uncertainty and the sensitivity of our results to alternative measures of uncertainty due to pandemics, using the recently developed Global Fear Index (GFI) by Salisu and Akanni (2020). Our results indicate that cryptocurrencies could act as hedge against uncertainty due to pandemics, albeit with reduced hedging effectiveness in the COVID-19 period. Accounting for asymmetry is found to improve the predictability and forecast performance of the model, which indicates that failure to account for asymmetry in modeling the effect of a pandemic-induced uncertainty on cryptocurrency may lead to incorrect conclusion. The results seem to be sensitive to the choice of measure of pandemic-induced uncertainty.

Suggested Citation

  • Salisu, Afees & Ogbonna, Ahamuefula & Oloko, Tirimisiyu, 2020. "Pandemics and cryptocurrencies," MPRA Paper 109597, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:109597
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    References listed on IDEAS

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    1. Kai Meng & Khalid Khan, 2024. "Is cryptocurrency Efficient? A High-Frequency Asymmetric Multifractality Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 63(6), pages 2225-2246, June.

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    More about this item

    Keywords

    COVID-19; Cryptocurrency; Distributed Lag Model; Pandemic; Uncertainty;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets

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