The effects of central bank digital currencies news on financial markets

Based on coverage of over 660m news stories from LexisNexis News \& Business between 2015–2021, we provide two new indices around the growing area of Central Bank Digital Currency (CBDC): the CBDC Uncertainty Index (CBDCUI) and CBDC Attention Index (CBDCAI). We show that both indices spiked during news related to new developments in CBDC and in relation to digital currency news items. We demonstrate that CBDC indices have a significant negative relationship with the volatilities of the MSCI World Banks Index, USEPU, and the FTSE All-World Index, and positive with the volatilities of cryptocurrency markets, foreign exchange markets, bond markets, VIX, and gold. Our results suggest that financial markets are more sensitive to CBDC Uncertainty than CBDC Attention as proxy by these indices. These findings contain useful insights to individual and institutional investors, and can guide policymakers, regulators, and the media on how CBDC evolved as a barometer in the new digital-currency era.

CBDC, DCC-GJR-GARCH, Market effect, SVAR, Uncertainty and attention index

10.1016/j.techfore.2022.121715

0040-1625

Wang, Yizhi

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Lucey, Brian

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Vigne, Samuel

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Yarovaya, Larisa

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July 2022

Wang, Yizhi

0f22fa5e-d287-4e17-bf87-d6c986e6e5dc

Lucey, Brian

ea62416d-8886-4acd-b160-f653aea6c319

Vigne, Samuel

c36a65c5-56b3-4257-97af-395966be099d

Yarovaya, Larisa

2bd189e8-3bad-48b0-9d09-5d96a4132889

Wang, Yizhi, Lucey, Brian, Vigne, Samuel and Yarovaya, Larisa (2022) The effects of central bank digital currencies news on financial markets. Technological Forecasting and Social Change, 180, [121715]. (doi:10.1016/j.techfore.2022.121715).

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Accepted/In Press date: 19 April 2022

e-pub ahead of print date: 1 May 2022

Published date: July 2022

Additional Information: Funding Information: The authors would like to acknowledge the support of The China Scholarship Council (project code:202008300011). Funding Information: Yizhi Wang is an adjunct assistant professor and a Ph.D. researcher in Trinity Business School, Trinity College Dublin. Previously, he was a research assistant in Henan Polytechnic University. He obtained an MSc in Financial Risk Management with a distinction from Trinity College Dublin, an BSc in Financial Management with a distinction from Henan Polytechnic University. His research interests include econometric modelling, data analysis, fintech, digital currencies. His research is widely published in ABS ranked journals, such as International Review of Financial Analysis (ABS3), Finance Research Letters (ABS2), China Finance Review International (ABS1). He was awarded the Shanghai Institute of International Finance and Economics Best Paper Award from 2021 China Finance Review International Conference. Furthermore, Yizhi Wang serves as a peer reviewer for International Review of Financial Analysis, Journal of Commodity Markets, Economics Letters, Finance Research Letters, Journal of Asian Business and Economic Studies, among others. Yizhi Wang is holding a PhD full scholarship from China Scholarship Council (CSC) - Trinity College Dublin Joint Scholarship Programme. Publisher Copyright: © 2022 The Authors

Keywords: CBDC, DCC-GJR-GARCH, Market effect, SVAR, Uncertainty and attention index