How Does Uncertainty Affect Volatility Correlation between Financial Assets? Evidence from Bitcoin, Stock and Gold

ABSTRACT

This paper deciphers the correlation of volatility between Bitcoin, stock and gold, in the context of uncertainty. The wavelet analysis results indicate that the selected assets are primarily positively correlated with each other, specifically in periods when the economic policy uncertainty (EPU) is high. Furthermore, the logit regression confirms that the EPU and categorial EPU indices have heterogeneous effects on the interdependence between Bitcoin, the S&P 500 and gold. Therefore, our findings provide insights for policy-makers to reduce the adverse impact of uncertainty on financial asset volatility.

KEYWORDS:

• Economic policy uncertainty
• wavelet analysis
• logit regression
• the safe haven

JEL:

• C32
• D81
• G11

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. Silk Road is a black-market shopping site using covert services. This website trades in Bitcoin, and the exchange rate is linked to the dollar.

2. The fiscal cliff refers to a combination of expiring tax cuts and across-the-board government spending cuts that was scheduled to become effective December 31, 2012.

3. If necessary, ask the authors for the results.

Additional information

Funding

This work was supported by the National Social Science Foundation [20BJY021].