Effects of the political risk on Bitcoin return and volatility: evidence from the 2016 US presidential election

Ajmi, Hechem and Arfaoui, Nadia (2020) Effects of the political risk on Bitcoin return and volatility: evidence from the 2016 US presidential election. Journal of Financial Economic Policy, ahead-of-print. pp. 1-22. ISSN 17576385 E-ISSN 1757-6393 (In Press)

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Abstract

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.

Item Type:	Article (Journal)
Additional Information:	9965/86668
Uncontrolled Keywords:	Financial markets, financial markets, macroeconomy, financial economics
Subjects:	H Social Sciences > HB Economic Theory > HB131 Methodology.Mathematical economics. Quantitative methods H Social Sciences > HB Economic Theory > HB221 Price H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Institute of Islamic Banking & Finance (IIiBF)
Depositing User:	Doctor Hechem AJMI
Date Deposited:	22 Dec 2020 13:06
Last Modified:	22 Dec 2020 13:06
URI:	http://irep.iium.edu.my/id/eprint/86668

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