The Impact of Economic Policy Uncertainty on Herd Behaviour of Cryptocurrencies under Information Asymmetry as a Moderating Variable

This research evaluates the effect of Economic Policy Uncertainty (EPU) on herd behaviour in the cryptocurrency market and tests whether information asymmetry, proxied by Amihud (2002) illiquidity, moderates that effect. Drawing on a balanced cross-section of the fifty largest cryptocurrencies by aggregate USD trading volume during 2017–2025, we estimate three complementary herding measures—Christie and Huang's (1995) Cross-Sectional Standard Deviation (CSSD), Chang, Cheng and Khorana's (2000) Cross-Sectional Absolute Deviation (CSAD), and a Hwang and Salmon (2004)-style cross-sectional beta dispersion—and merge them with five Baker–Bloom–Davis policy-uncertainty indices (Global, United States, Europe, China and Japan). Newey–West HAC-corrected regressions document robust quadratic dependence of CSAD on the absolute market return, confirming the presence of herd-consistent return co-movement. Global, European, Japanese, and Chinese EPU exert statistically significant negative effects on cross-sectional dispersion, indicating that policy uncertainty intensifies herding. The cross-sectional EPU × information-asymmetry interaction is statistically significant in the Hwang–Salmon specification, establishing an uncertainty–asymmetry channel through which macro shocks compress crypto-asset betas. The moderation peaks during the COVID-19 dislocation (and reverses sign in the post-COVID consolidation phase, evidencing regime dependence. The findings establish a verifiable behavioural channel linking macro-policy uncertainty to crypto-market co-movement, with implications for portfolio management, exchange disclosure design, and regulatory monitoring of speculative digital-asset markets.