The Effects of Central Bank Digital Currencies News on Financial Markets

65 Pages Posted: 16 Nov 2021 Last revised: 17 Jun 2022

See all articles by Yizhi Wang

Yizhi Wang

Trinity College (Dublin) - Trinity Business School

Brian M. Lucey

Trinity Business School, Trinity College Dublin; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Samuel Vigne

Trinity College (Dublin) - Trinity Business School

Larisa Yarovaya

University of Southampton

Abstract

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

Suggested Citation

Wang, Yizhi and Lucey, Brian M. and Vigne, Samuel and Yarovaya, Larisa, The Effects of Central Bank Digital Currencies News on Financial Markets. Available at SSRN: https://ssrn.com/abstract=3961648

Yizhi Wang (Contact Author)

Trinity College (Dublin) - Trinity Business School ( email )

Aras an Phiarsaigh
College Green
Dublin, Leinster D2
Ireland

Brian M. Lucey

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Samuel Vigne

Trinity College (Dublin) - Trinity Business School ( email )

Aras an Phiarsaigh
College Green
Dublin, Leinster D2
Ireland

Larisa Yarovaya

University of Southampton ( email )

Southampton Business School
Southampton
United Kingdom

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