An Investigation of the Predictability of Uncertainty Indices on Bitcoin Returns

Policymakers and portfolio managers pay keen attention to sources of uncertainties that drive asset returns and volatility. The influence of uncertainty on Bitcoin has the potential to drive fluctuations in the entire cryptocurrency market. We investigate the predictability of thirteen economic poli...

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Bibliographic Details
Published in:Journal of risk and financial management 2023-10, Vol.16 (10), p.461
Main Authors: Wang, Jinghua, Ngene, Geoffrey M., Shi, Yan, Mungai, Ann Nduati
Format: Article
Language:English
Subjects:
Algorithms
Crypto-currencies
Data mining
Datasets
Decision trees
Decision-making
Digital currencies
Economic policy
Financial statements
Forecasting
Forecasts and trends
International trade
Investigations
Machine learning
Pandemics
Securities markets
Stock exchanges
Variables
Citations: Items that this one cites
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Summary:Policymakers and portfolio managers pay keen attention to sources of uncertainties that drive asset returns and volatility. The influence of uncertainty on Bitcoin has the potential to drive fluctuations in the entire cryptocurrency market. We investigate the predictability of thirteen economic policy uncertainty indices on Bitcoin returns. Using the Random Forest machine learning algorithm, we find that Singapore’s economic policy uncertainty (EPU) has the strongest predictive power on Bitcoin returns, followed by financial crisis (FC) uncertainty and world trade uncertainty (WTU). We further categorize these uncertainties into different groups. Interestingly, the predictability of uncertainty indices on Bitcoin returns within the international trade group is stronger compared to other uncertainty categories. Additionally, we observed that internet-based uncertainty measures have more predictive power of Bitcoin returns than newspaper- and report-based measures. These results are robust using various additional machine learning methods. We believe that these findings could be valuable for policymakers and portfolio managers when making decisions related to uncertainty drivers of cryptocurrency prices and returns.
ISSN:1911-8074
1911-8066
1911-8074
DOI:10.3390/jrfm16100461