Asymmetric impact of the COVID-19 pandemic on foreign exchange markets: Evidence from an extreme quantile approach
DOI:
https://doi.org/10.17811/ebl.12.1.2023.20-32Keywords:
Covid-19, exchange rate, cross-quantilogram dependence, directional predictability.Abstract
This study analyzes asymmetric transmission from the COVID-19 pandemic to major foreign exchange markets from 2 January 2020 to 2 June 2022. This paper contributes to the literature by investigating how the impact of COVID-19 on currency markets co-moves across market conditions and investment horizons. The article uses the recently developed cross-quantilogram framework to achieve this, which quantifies the cross-quantile dependency across time series without any moment condition requirement. The findings demonstrate that changes in the total daily global confirmed cases of COVID-19 can forecast changes in the currency markets under all market circumstances. These findings have significant implications for global investors and policymakers.
References
Aslam, F., Aziz, S., Nguyen, D. K., Mughal, K. S., & Khan, M. (2020). On the efficiency of foreign exchange markets in times of the COVID-19 pandemic. Technological forecasting and social change, 161, 120261.
Arif, M., Naeem, M. A., Hasan, M., M Alawi, S., & Taghizadeh-Hesary, F. (2021). Pandemic crisis versus global financial crisis: Are Islamic stocks a safe-haven for G7 markets?. Economic Research-Ekonomska Istraživanja, 1-21.
Balcilar, M., Bekiros, S., & Gupta, R. (2017). The role of news-based uncertainty indices in predicting oil markets: a hybrid nonparametric quantile causality method. Empirical Economics, 53(3), 879-889.
Broock, W. A., Scheinkman, J. A., Dechert, W. D., & LeBaron, B. (1996). A test for independence based on the correlation dimension. Econometric reviews, 15(3), 197-235.
Fasanya, I. O., Oyewole, O., Adekoya, O. B., & Odei-Mensah, J. (2020). Dynamic spillovers and connectedness between COVID-19 pandemic and global foreign exchange markets. Economic Research-Ekonomska Istraživanja, 1-26.
Gunay, S. (2021). Comparing COVID-19 with the GFC: A shockwave analysis of currency markets. Research in International Business and Finance, 56, 101377.
Hung, N. T., & Vo, X. V. (2021). Directional spillover effects and time-frequency nexus between oil, gold and stock markets: Evidence from pre and during COVID-19 outbreak. International Review of Financial Analysis, 76, 101730.
Hung, N. T. (2020). Time-Frequency Nexus Between Bitcoin and Developed Stock Markets in the Asia-Pacific. The Singapore Economic Review, 1-26.
Han, H., Linton, O., Oka, T., & Whang, Y. J. (2016). The cross-quantilogram: Measuring quantile dependence and testing directional predictability between time series. Journal of Econometrics, 193(1), 251–270.
Konstantakis, K. N., Melissaropoulos, I. G., Daglis, T., & Michaelides, P. G. (2021). The euro to dollar exchange rate in the Covid‐19 era: Evidence from spectral causality and Markov‐switching estimation. International Journal of Finance & Economics.
Linton, O., & Whang, Y. J. (2007). The quantilogram: With an application to evaluating directional predictability. Journal of Econometrics, 141(1), 250-282.
Naeem, M. A., Nguyen, T. T. H., Nepal, R., Ngo, Q. T., & Taghizadeh–Hesary, F. (2021). Asymmetric relationship between green bonds and commodities: Evidence from extreme quantile approach. Finance Research Letters, 101983.
Njindan Iyke, B. (2020). The disease outbreak channel of exchange rate return predictability: Evidence from COVID-19. Emerging Markets Finance and Trade, 56(10), 2277-2297.
Pham, L. (2021). How Integrated are Regional Green Equity Markets? Evidence from a Cross-Quantilogram Approach. Journal of Risk and Financial Management, 14(1), 39.
Rehman, M. Z., Tiwari, A. K., & Samontaray, D. P. (2021). Directional predictability in foreign exchange rates of emerging markets: New evidence using a cross-quantilogram approach. Borsa Istanbul Review. https://doi.org/10.1016/j.bir.2021.03.003
Sharma, G. D., Tiwari, A. K., Jain, M., Yadav, A., & Erkut, B. (2021). Unconditional and conditional analysis between covid-19 cases, temperature, exchange rate and stock markets using wavelet coherence and wavelet partial coherence approaches. Heliyon, 7(2), e06181.
Shahzad, S. J. H., Gupta, R., Demirer, R., & Pierdzioch, C. (2020). Oil shocks and directional predictability of macroeconomic uncertainties of developed economies: Evidence from high‐frequency data. Scottish Journal of Political Economy. https://doi.org/10.1111/sjpe.12280
Shahzad, S. J. H., Bouri, E., Roubaud, D., Kristoufek, L., & Lucey, B. (2019). Is Bitcoin a better safe-haven investment than gold and commodities?. International Review of Financial Analysis, 63, 322-330.
Umar, Z., & Gubareva, M. (2020). A time–frequency analysis of the impact of the Covid-19 induced panic on the volatility of currency and cryptocurrency markets. Journal of Behavioral and Experimental Finance, 28, 100404.
Wang, Q. J., Chen, D., & Chang, C. P. (2021). The impact of COVID-19 on stock prices of solar enterprises: A comprehensive evidence based on the government response and confirmed cases. International Journal of Green Energy, 18(5), 443-456.
Downloads
Published
How to Cite
Issue
Section
License
The works published in this journal are subject to the following terms:
1. Oviedo University Press (the publisher) retains the property rights (copyright) of published works, and encourages and enables the reuse of the same under the license specified in paragraph 2.
© Ediuno. Ediciones de la Universidad de Oviedo / Oviedo University Press
2. The works are published in the online edition of the journal under a Creative Commons Attribution-Non Commercial-Non Derives 3.0 Spain (legal text). You can copy, use, distribute, transmit and publicly display, provided that: i) you cite the author and the original source of publication (journal, publisher and URL of the work), ii) they are not used for commercial purposes, iii) mentions the existence and specifications of this license.
3. Conditions of self-archiving. The author can archive the post-print version of the article (publisher’s version) on the author’s personal website and/or on the web of the institution where he belong, including a link to the page of the journal and putting the way of citation of the work. Economics and Business Letters and its URL https://reunido.uniovi.es/index.php/EBL/index are the only authorized source for correctly giving the reference of the publisher’s version in every mention of the article.
