COVID-19 pandemic and economic policy uncertainty: The first test on the hedging and safe haven properties of cryptocurrencies

Abstract

This study examines the role of the top-5 cryptocurrencies and gold as a hedge and safe haven against the economic policy uncertainty (EPU) before and during the ongoing COVID–19 crisis. We use the GARCH model for the main analysis and a safe haven index (SHI) for robustness. Our findings show that gold and cryptocurrencies cannot act as a strong hedge or safe haven against EPU before and during the COVID-19 pandemic. However, we find that the SHI exhibits negative returns and increased volatility during the COVID-19 and confirms that cryptocurrencies generally act as weak safe haven. Gold is classified as a weak safe haven asset during the whole period and more likely as a safe asset before the health crisis but loses its safe haven property during the COVID-19 crisis. Our findings provide useful information for investors interested in the cryptocurrency market and safe haven assets when building assets portfolios.