Do cryptocurrencies hedge against EPU and the equity market volatility during COVID-19?-New evidence from quantile coherency analysis

Employing the new measure of the contagion effect of the COVID-19, i.e. the Infectious Disease EMV Index by Baker et al. (2020) and the novel Quantile Cross-spectral (coherency) approach proposed by Barun & iacute;k and Kley (2019), this study probes into the interconnectedness between EPU and cryptocurrencies as well as that between the COVID-19 pandemic and cryptocurrencies in a time series from August 10th 2015 to June 30th 2020. Our empirical findings indicate cryptocurrencies act as good hedging tools against high EPU, but not during periods of moderate or low EPU and that their hedging properties don't remain all the time. Several kinds of cryptocurrencies, XRP and XLM specifically, can serve as hedging assets during such period of extreme financial market panic. Evidence from China, the US and the UK insists that timely response to extreme outbreak like COVID-19 is of pivotal significance to prevent the financial market and the economy from descending into a catastrophe. Notably, XLM demonstrates the best hedging properties against high EPU, severe pandemic and other cryptocurrencies. XLM and BTC are excellent choices of hedging assets both for individual investors and institutional investors. The difference lies in that the individual investors have two more options, namely LTC and XMR. (c) 2021 Elsevier B.V. All rights reserved.