The impact of central bank digital currency variation on firm's implied volatility

The paper investigates whether a firm's implied volatility is affected by the volatility of central bank digital currencies. Our sample covers 2853 listed companies in the United States from 2014 to 2018. First, we find the variation of central bank digital currency has a positive impact on a firm's implied volatility. Second, the healthier firms' conditions can reduce the relationship be-tween central bank digital currency variation and a firm's implied volatility. Third, the positive relation between central bank digital currency and firm's implied volatility still exists in investment-grade, speculative-grade, and unrated firms. Finally, to eliminate the endogeneity problem, we adopt simultaneous equation models (SEM) and find our results are still robust after excluding endogenous concerns. Our research provides a reminder for corporate managers and new implications for policymakers.

Automated summary

This paper examines the impact of central bank digital currency volatility on a firm's implied volatility. The sample consists of 2853 listed companies in the United States from 2014 to 2018. The results show that the variation of central bank digital currency has a positive effect on a firm's implied volatility. Additionally, the healthier the firm's conditions, the weaker the relationship between central bank digital currency variation and a firm's implied volatility. Moreover, the positive relationship between central bank digital currency and firm's implied volatility holds true for investment-grade, speculative-grade, and unrated firms. Finally, the use of simultaneous equation models (SEM) confirms the robustness of the results even after excluding endogenous concerns. This research serves as a reminder for corporate managers and provides new implications for policymakers.