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.