Does economic policy uncertainty affect cryptocurrency markets? Evidence from Twitter-based uncertainty measures


Wu W., Tiwari A. K. , GÖZGÖR G. , Huang Leping H. L.

RESEARCH IN INTERNATIONAL BUSINESS AND FINANCE, vol.58, 2021 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 58
  • Publication Date: 2021
  • Doi Number: 10.1016/j.ribaf.2021.101478
  • Title of Journal : RESEARCH IN INTERNATIONAL BUSINESS AND FINANCE
  • Keywords: Cryptocurrencies, Economic policy uncertainty, Twitter-based uncertainty measures, Granger causality tests, Recursive evolving window approach, COVID-19 crisis, BITCOIN RETURNS, VOLATILITY, HEDGE, INEFFICIENCY, PREDICT, TESTS

Abstract

Using daily data from August 9, 2015, to July 7, 2020, this study examines the effects of economic policy uncertainty (EPU) on the returns of four cryptocurrencies: Bitcoin, Ethereum, Litecoin, and Ripple. To this end, two new measures of EPU (Twitter-based economic uncertainty and Twitter-based market uncertainty) are considered. A Granger causality test using the recursive evolving window approach shows a significant causality between the Twitter-based EPU measures and the BTC/USD exchange rate from October 2016 to July 2017. Moreover, a significant causality was noted from the EPU measures to the ETH/USD exchange rate from June 2019 to February 2020 and from the EPU measures to the XRP/USD exchange rate from January 2020 to February 2020. The Twitter-based EPU measures primarily positively affect the returns of the related cryptocurrencies during these periods. These results are robust to different measures of Twitter-based EPU and different econometric techniques. Potential implications, including the COVID-19 era, are also discussed.