Cryptocurrencies are Not Immune to Coronavirus: Evidence from Investor Fear

41 Pages Posted: 4 Feb 2021 Last revised: 6 Jun 2021

See all articles by Lai T. Hoang

Lai T. Hoang

Monash University - Monash Centre for Financial Studies

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Date Written: February 3, 2021

Abstract

This paper examines the effects of fear of coronavirus on returns and volatility of five major cryptocurrencies during the COVID-19 outbreak. Adopting Google search volume on a comprehensive list of coronavirus-related terms to construct a gauge of fear, we show that daily innovations in coronavirus fear are associated with negative returns and positive volatility. The effects are driven by the extreme events and associated googling in March 2020. Out of-sample tests further show a significant contribution of fear to forecasting next-day volatility. The results indicate that (i) cryptocurrencies (particularly bitcoin) are not a safe haven for investors against the COVID-19 pandemic, and (ii) Google searches contain important information to explain cryptocurrency market movements during times of crisis.

Keywords: cryptocurrencies, bitcoin, coronavirus, pandemic, Google Trends

JEL Classification: G01, G17, G23

Suggested Citation

Hoang, Lai T. and Baur, Dirk G., Cryptocurrencies are Not Immune to Coronavirus: Evidence from Investor Fear (February 3, 2021). Available at SSRN: https://ssrn.com/abstract=3778988 or http://dx.doi.org/10.2139/ssrn.3778988

Lai T. Hoang (Contact Author)

Monash University - Monash Centre for Financial Studies ( email )

13/f 30 Collin Street
Melbourne, 3000
Australia

Dirk G. Baur

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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