•Uncertainty explains cryptocurrency market returns.•Cryptocurrency market returns have hedging and safe-haven properties, but the responses of cryptocurrency market depend on the type of ...uncertainty.•The cryptocurrency market could be considered a strong hedge against geopolitical risks in most cases, but it could be considered a weak hedge and safe haven against economic policy uncertainty during a bull market.
This article explores the effect of uncertainty on the cryptocurrency market. Previous work has been limited to analyzing the effect of uncertainty on Bitcoin. We depart from the previous literature by focusing on top 25 cryptocurrencies and find that the cryptocurrency market can serve as a strong hedge against geopolitical risks in most cases, but it could be considered a weak hedge and safe haven against economic policy uncertainty during a bull market. Notably, the cryptocurrency market reacts to uncertainty differently, depending on the type of uncertainty. Overall, our findings suggest that uncertainty is an essential determinant of cryptocurrency returns.
•This paper investigates whether the economic policy uncertainty (EPU) index provided by Baker et al. (2016) can predict cryptocurrency volatility.•We show that the China EPU index can predict ...negatively the Bitcoin monthly volatility.•China's ban on crypto-trading does not result in a response in the volatility of Bitcoin.
We investigate the relationship between the economic policy uncertainty index (EPU) and cryptocurrency volatility. We find that a change in EPU of China predicts cryptocurrency volatility, but a change in the EPU of the U.S., Japan, or Korea has no such effect. Moreover, changes in the China EPU are negatively associated with Bitcoin and Litecoin future volatility, which may imply that Bitcoin and Litecoin are hedging tools against the EPU risk. However, changes in China EPU may not affect the cryptocurrency volatility after the Chinese government's regulation of crypto-trading.
•Investigate relationship between election, policy, and market uncertainties•Highlight an important role for prediction market probabilities at daily frequency•Election probability of incumbent party ...is key driver of uncertainty around elections
We examine the relationship between election uncertainty, economic policy uncertainty, and financial market uncertainty in a prediction-market analysis, covering seven US presidential election campaigns. We argue theoretically that changes in the incumbent party re-election probability should be a key driver of changes in policy uncertainty. Consistent with this theory, we find that a large portion of changes in financial uncertainty in the final stages of election campaign seasons is explained by changes in the probability of the incumbent party getting re-elected. Our findings suggest that the incumbent-party election probability, derived from prediction markets, is an important measure of economic policy uncertainty in the days leading up to US elections.
Renewable energy is vital to achieve environmental sustainability, improve public health and address global climate change. However, the transition to renewable energy is impossible without massive ...public renewable energy research and development budgets (RRDD) along with sustained state and federal policies. RRDD in the US showed significant fluctuations over the last three decades and economic policy uncertainty (EPU) was also highly volatile. Based on this backdrop, this study examined the asymmetric impact of RRDD and EPU on CO2 emissions in the US, accounting for structural breaks in data, and controlling for economic growth and FDI. Keeping in view the overwhelming reliance on linear methods in previous studies, both symmetric and asymmetric ARDL approaches are employed for cointegration and long-run results on quarterly data over the period 1985 to 2017. The outcomes from symmetric and asymmetric cointegration tests unfolded only asymmetric cointegration among variables. The long-run findings unveil that a positive change in EPU mitigates emissions but a dominant reduction in CO2 emissions comes from a negative change in EPU. Therefore, it is highly desirable to reduce EPU to achieve a considerable long-term reduction in CO2 emissions. Surprisingly, positive and negative changes in RRDD do not affect CO2 emissions. Hence, the study could not find any significant reduction in CO2 emissions associated with RRDD, implying that renewable energy technology budgets are not sufficient enough to reduce pollutant emissions. The evidence also confirms that the EKC hypothesis is valid in the US considering RRDD, EPU, and FDI in the model. Finally, the study suggests a significant uplift in RRDD and fiscal policies with more subsidies and tax benefits for the growth of renewable energy sector. Also, stability in the environmental policies, regardless of the economic condition, is necessary to achieve long-term environmental benefits.
•Estimated impact of EPU and renewable energy budgets on CO2 emissions.•Positive changes in EPU reduce emissions.•Negative changes in EPU mitigate emissions with a more pronounced effect.•Renewable energy technology investment is not sufficient to influence emissions.•EKC hypothesis is valid.
•CSR investments offset the negative impact of economic policy uncertainty on firm financial performance.•During times of high economic uncertainty, the positive valuation effect of CSR is greater in ...developed markets.
This letter examines the effect of economic policy uncertainty on the relationship between corporate social responsibility (CSR) and corporate financial performance (CFP). Using a large sample of public firms from 36 countries over the 2002-2016 period, our findings show that the social capital built over years through CSR investments offsets the negative role of economic policy uncertainty on firm financial performance. Moreover, we document that, during times of high business uncertainty, the positive valuation effect of CSR is greater in developed markets.
This study examines the effect of economic policy uncertainty (EPU) on bank stability using bank-level panel data from 2005 to 2019. The findings show that EPU decreases bank stability, but the ...effect varies across the bank and market structure, and it is significantly higher during financial crisis periods. Moreover, we examine the roles of institutional quality and bank competition in shaping the EPU-bank stability nexus. The results show a significant threshold effect on the EPU bank stability nexus using the threshold estimation technique considering nonlinearity. Countries with institutional quality above the threshold level reduce the adverse impact of policy uncertainty on bank stability, while lower bank competition reinforces the adverse effect. In addition, EPU adversely impacts bank stability in all countries in the sample regardless of countries' development and income levels. The results are robust to alternative risk indicators and various additional tests. Our empirical work has specific policy implications for banks, regulatory bodies, and government agencies for decision-making.
•This study examines the effect of economic policy uncertainty on bank stability, using bank-level panel data for the period 2005–2019.•Economic policy uncertainty adversely affect the bank stability.•Countries with institutional quality above the threshold level reduce policy uncertainty's adverse impact on bank stability.•Lower bank competition reinforces the negative effect of economic policy uncertainty on bank stability.•Economic policy uncertainty adversely impacts bank stability in all countries in the sample regardless of countries' development and income levels.
This paper examines the asymmetric effects of the United States Economic Policy Uncertainty (USEPU), Geopolitical Threats (GPRT), Geopolitical Acts (GPRA), and the West Texas Intermediate (WTI) crude ...oil on Green Bond returns. Our study analyses USEPU, GPRT, GPRA, WTI, and Green Bond monthly data from September 2012 to August 2022. By applying the Nonlinear Autoregressive Distributed Lags (NARDL) model, our empirical evidence shows that in the short run, the return on green bonds is negatively affected by an increase in USEPU and GPRA positively affected by an increase in GPRT and WTI. In the long run, the return on green bonds is negatively affected by an increase in USEPU, GPRA, and GPRT but positively affected by WTI. Considering the climate crisis, looking at these findings in the context of green bonds is essential to entice green investments. Policymakers should use our results for a policy design to mitigate green bond market volatility caused by external uncertainties and risks. Furthermore, we conclude that uncertainties should be considered when investing in green bonds and managing investment portfolios.
•We are the first to investigate the asymmetric effects of USEPU, GPRT, GPRA, and WTI oil on green bond returns.•Employs the NARDL model and nonlinear Ganger causality.•In the short run, the return of green bonds is negatively affected by USEPU and GPRA but positively by GPRT and WTI.•In the long run, the return on green bonds is negatively affected by USEPU, GPRT, and GPRA but positively affected by WTI.
We investigate the impact of geopolitical risk, global and US economic policy uncertainty on the structure of Bitcoin correlation with various financial and commodities asset classes. We further ...investigate the impact of the aforementioned factors on the volatility and risk premium of Bitcoin investment. We find that both geopolitical risk and global economic policy uncertainty command a risk premium, particularly in distress market conditions. Moreover, during the period of high policy uncertainty and worsening economic conditions, Bitcoin investors can only hedge their portfolio with gold, not with other financial assets. Our results highlight that the effect of geopolitical risk, global and US economic policy uncertainty is far more significant during unfavorable economic conditions.
•We investigate the impact of geopolitical risk, global and US economic policy uncertainty on the Bitcoin investment.•Geopolitical risk and global economic policy uncertainty command a risk premium during weaker economic conditions.•Bitcoin investors can hedge their portfolio only with gold, not with other financial assets.
Energy efficiency has enormous potential for boosting economic development while simultaneously reducing greenhouse gas emissions. Energy efficiency improvements are widely accepted as a necessary ...corollary of China's decarbonisation efforts. This study analysed key factors in green energy investment and its determinants, i.e. natural resources and uncertainty of economic policy on greenhouse gas emissions, from 1987 to 2019. This work conduct a thorough empirical analysis and used innovative econometric techniques, such as the Markov-switching equilibrium correction model for long-run estimation and the kernel-based regularised least squares machine-learning approach, to establish the direction of causality for the variables in this study. The results indicate that green energy investment is significantly correlated with greenhouse gas emissions and helps to support environmental quality. However, although natural resources and economic policy uncertainty support economic growth, they are harmful to environmental quality. This conclusion implies that the Chinese government should exploit green energy investment to strengthen environmental performance as its long-term strategy.
•The impact of green energy investment and economic policy uncertainty on the greenhouse gas emissions are explored.•Employ Markov Switching Equilibrium Correction Model (MS-ECM) for long run estimation.•A machine learning approach Kernel-based Regularised Least Squares (KRLS) for causal relation.•Natural resources and economic policy uncertainty support a country economic growth but are harmful to environmental quality.•Green energy investment in China is supported to reduce greenhouse gas emissions.
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