Dependence Structure between Bitcoin and Economic Policy Uncertainty: Evidence from Time–Frequency Quantile-Dependence Methods

Abstract

In this study, the dependence between Bitcoin (BTC) and economic policy uncertainty (EPU) of USA and China is estimated by applying the latest methodology of quantile cross-spectral dependence. Daily data comprising a total of 1947 observations and covering the period of 1 October 2013 to 31 January 2019 are used in this study. The findings indicate that a positive return interdependence between BTC and EPU is high in the short term, and this dependence decreases as investment horizons increase from weekly to yearly. The information on the time-varying and time– frequency structure of interdependence is also extracted by applying wavelet coherence analysis. The estimated results of wavelet coherence suggest that the correlation between BTC and EPU is positive during a short-term investment horizon. Finally, the frequency domain Breitung and Candelon causality test is applied, and results show the evidence of insignificant causality between Bitcoin and EPU. Overall, the findings highlight the diversification benefits of Bitcoin during the period of uncertainty.