Does uncertainty predict cryptocurrency returns? A copula-based approach

ABSTRACT

This study is confined in analysing how the economic policy uncertainty (EPU) effects affect exchange rates on cryptocurrency assets in times of financial turbulence characterized by low confidence in the financial stock markets, and tranquil periods where the financial stock markets behave smoothly. Our research employs the D-Vine pair-copula method on daily selected cryptocurrency (Bitcoin, Ethereum and Ripple) prices within the period of the 10 August 2016 to the 23 February 2018. Our findings document the presence of the dependence between the US EPU and cryptocurrencies and indicate a significant correlation with Ethereum which exhibits a much better return.

KEYWORDS:

• Cryptocurrency
• copula
• dependence structure
• policy uncertainty

JEL CLASSIFICATION:

• E3
• G1
• G17

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Ur Koumba

Dr Ur Koumba holds a Ph.D. in Pure Mathematics. Prior to obtaining that, he received a B.Sc. (Hons) and a M.Sc. degree in pure mathematics from the University of the Witwatersrand. In 2014, he completed his Ph.D. at the University of Johannesburg with a specialization in functional analysis and topology. For more than 7 years, Ur has taught mathematics, statistics, and applied mathematics (for economics) at undergraduate and postgraduate levels in the Department of Mathematics at the University of Witwatersrand and the University of Johannesburg. Since 2010, Ur has also developed a keen interest in financial economics, control theory, and optimization.

Calvin Mudzingiri

Dr Calvin Mudzingiri is a Senior Lecturer of Economics at the University of the Free State in South Africa. His research interests are behavioural and experimental economics, decisions sciences, international economics, monetary economics, household economics, macroeconomics and microeconomics.

Jules Mba

Dr Jules Clement Mba received the B.Sc. degree in Mathematics in 1999 from University of Douala, an advanced diploma in Education in 2003 from Teachers Training College of the University of Yaounde 1, and a M.Sc. in Differential Geometry in 2006 from the University of Yaounde 1, all in Cameroon. He received the Ph.D. degree in Group Theory in 2011 from the University of the Western Cape, Cape Town. He completed the MCom in Financial Economics in 2018 from the School of Economics of the University of Johannesburg, South Africa. Since 2012, he is a lecturer in the Department of Pure and Applied Mathematics of the University of Johannesburg. His present research interests are mainly in modeling, risk and uncertainty, portfolio optimization, and group theory.