Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230819
Authors: 
Ni, Xinwen
Härdle, Wolfgang Karl
Xie, Taojun
Year of Publication: 
2020
Series/Report no.: 
IRTG 1792 Discussion Paper No. 2020-013
Abstract: 
Cryptocurrencies’ values often respond aggressively to major policy changes, but none of the existing indices informs on the market risks associated with regulatory changes. In this paper, we quantify the risks originating from new regulations on FinTech and cryptocurrencies (CCs), and analyse their impact on market dynamics. Specifically, a Cryptocurrency Regulatory Risk IndeX (CRRIX) is constructed based on policy-related news coverage frequency. The unlabeled news data are collected from the top online CC news platforms and further classified using a Latent Dirichlet Allocation model and Hellinger distance. Our results show that the machine-learning-based CRRIX successfully captures major policy-changing moments. The movements for both the VCRIX, a market volatility index, and the CRRIX are synchronous, meaning that the CRRIX could be helpful for all participants in the cryptocurrency market. The algorithms and Python code are available for research purposes on www.quantlet.de.
Subjects: 
Cryptocurrency
Regulatory Risk
Index
LDA
News Classification
JEL: 
C45
G11
G18
Document Type: 
Working Paper

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