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

Abstract

Purpose

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.

Citation

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, Vol. 38 No. 2, pp. 454-468. https://doi.org/10.1108/SEF-09-2020-0385