Policy uncertainty and the extreme bitcoin price volatility: a wavelet approach

We use the data of Bitcoin price and the BBD index to analyse the relationship between policy uncertainty and extreme volatility of Bitcoin returns in different time and frequency domains. Like Bouri, Gupta (2017) and Demir et al. (2018), we collect daily price data of Bitcoin in USD from the website of CoinDesk (https://www.coindesk.com/price/). The reason why we use Bitcoin price data from CoinDesk is that its Bitcoin price index is an average of Bitcoin prices across major Bitcoin exchanges in the world and thus it can well reflect the overall trend of the Bitcoin market. We obtain daily data of the US Policy uncertainty indices from the website of Economic Policy Uncertainty Index (http://www.policyuncertainty.com) developed by Baker et al. (2016). Using the Policy uncertainty in the U.S. is not only related to the daily data availability, but also Bitcoin prices are mainly quoted in the USD, and the US policy changes will have implications for the global economy. The sample period for the above data is from 1 Jan 2011 to 16 Apr 2019. Following Demir et al. (2018), we consider the logarithmic returns of Bitcoin, and 3057 observations are obtained.