The Effects of Central Bank Digital Currencies News on Financial Markets
65 Pages Posted: 16 Nov 2021 Last revised: 17 Jun 2022
Based on coverage of over 660m news stories from LexisNexis News & Business between 2015–2021, we provide two new indices around the growing area of Central Bank Digital Currencies (CBDC): the CBDC Uncertainty Index (CBDCUI) and CBDC Attention Index (CBDCAI). We show that both indices spiked during news related to new developments in CBDC and in relation to digital currency news items. We demonstrate that CBDC indices have a significant negative relationship with the volatilities of the MSCI World Banks Index, USEPU, and the FTSE All-World Index, and positive with the volatilities of cryptocurrency markets, foreign exchange markets, VIX, and gold. Our results suggest that financial markets are more sensitive to CBDC Uncertainty than CBDC Attention as proxy by these indices. These findings contain useful insights to individual and institutional investors, and can guide policymakers, regulators, and the media on how CBDC evolved as a barometer in the new digital-currency era.
Keywords: CBDC, Uncertainty and attention index, Market effect, SVAR, DCC-GJR-GARCH
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