Effects of the political risk on Bitcoin return and volatility: evidence from the 2016 US presidential election
Purpose – This paper aims to investigate the effect of the political risk on Bitcoin return and volatility during the 2016 US pre-election and post-election periods. Design/methodology/approach – A daily composite political risk index is calculated by using the principal component analysis and Goog...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English English |
| Published: |
Emerald Publishing Limited
2020
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/86668/7/86668_Effects%20of%20the%20political%20risk%20on%20Bitcoin_SCOPUS.pdf http://irep.iium.edu.my/86668/13/86668_Effects%20of%20the%20political%20risk%20on%20Bitcoin.pdf http://irep.iium.edu.my/86668/ https://www.emerald.com/insight/content/doi/10.1108/JFEP-01-2020-0010/full/html |
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| Summary: | Purpose – This paper aims to investigate the effect of the political risk on Bitcoin return and volatility during the 2016 US pre-election and post-election periods.
Design/methodology/approach – A daily composite political risk index is calculated by using the principal component analysis and Google Trends. A quantile regression approach is adopted to assess the effect of the political risk index on Bitcoin return and volatility for both periods subject to market conditions.
Findings – Findings reveal that the political risk index tends to increase when moving from the pre-election
period to the post-election one. This is mostly attributed to the new challenges faced by the new elected
government. During the pre-election period, the quantiles regression shows that the political risk index negatively affects Bitcoin return when the market is bearish, whereas a positive impact on volatility is found in bearish and bullish markets. When the political situation becomes severer during the post-election period,
the quantiles plots show that the increase of the political risk index leads to a significant increase of Bitcoin return, whereas Bitcoin volatility remains relatively stable. This means that Bitcoin can be adopted as a hedging tool when the political situation becomes severer.
Originality/value – Comparing to the existed studies in the field, this paper considers Google trends as a main source to assess the daily composite political risk index during the 2016 US presidential election. |
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