COVID-19 pandemic and cryptocurrency markets: an empirical analysis from a linear and nonlinear causal relationship

Sahoo, P.K (2021) COVID-19 pandemic and cryptocurrency markets: an empirical analysis from a linear and nonlinear causal relationship. Studies in Economics and Finance, 38 (2). pp. 454-468. ISSN 10867376

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Abstract

This paper aims to empirically examine the effect of Coronavirus disease 2019 (COVID-19) pandemic on cryptocurrency market returns with particular attention to top five cryptocurrencies and COVID-19 confirmed and death cases. Design/methodology/approach: The study applies the linear Toda and Yamamoto and nonlinear Diks and Panchenko Granger causality test to know the causal relationship of cryptocurrencies with COVID-19 pandemic. The study also uses the Narayan and Popp endogenous two structural break tests to capture the break period of the sample. Findings: The findings of the study confirm the existence of unidirectional causal relation from COVID-19 confirmed and death cases to cryptocurrency price returns. While examining the break periods, the post-break period result indicates the presence of unidirectional linear causality from COVID-19 confirmed cases to Bitcoin and Ethereum price returns. This shows that prior knowledge of COVID-19 pandemic growth helps to predict the return of cryptocurrencies. Originality/value: The study suggests the investors or crypto lovers to observe the growth of COVID-19 situations during their investment in cryptocurrency markets.

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