On the efficiency of foreign exchange markets in times of the COVID-19 pandemic

Abstract

Highlights The COVID-19 pandemic has jolted foreign exchange markets within a short time. We measure forex efficiency with multifractal detrended fluctuation analysis. We find varying degrees of forex market efficiency before and during COVID-19. Investors can structure their investment strategies to exploit market inefficiency. Our findings may help policymakers find responses to such forex market upheavals.

Measuring the global economic impact of the coronavirus outbreak: Evidence from the main cluster countries

“…Moreover, currency markets play a crucial role in international finance, as counterparts employ different strategies for hedging against economic exposure through currency derivatives. Therefore, it is worthwhile to understand the effect of COVID-19 on the currency market, especially as this market is the largest financial market in terms of average daily trading volume ( Aslam et al, 2020 ).…”

“…Some studies investigate the impact of COVID-19 on different financial markets (e.g., Albulescu, 2020 ; Baker et al, 2020 ; Czech et al, 2020 ; Zhang et al, 2020 ). Some others focus on the efficiency of the currency market and the predictability of its volatility ( Aslam et al, 2020 ; Iyke, 2020 ). Another corpus of work investigates the role of cryptocurrencies in terms of safe havens or hedging during the time of COVID (e.g., Chen et al, 2020 ; Conlon and McGee, 2020 ; Corbet et al, 2020 ; Mnif et al, 2020 ).…”

Intraday Volatility Spillovers among European Financial Markets during COVID-19

“…In addition to a significant decline in stock indices (McKibbin and Vines 2020), an increase in stock markets' volatility has been recorded during this pandemic (Ali et al 2020;Barro et al 2020), causing huge investment losses (Zhang et al 2020). Furthermore, the intraday efficiency of European stock markets and forex markets has declined during the COVID-19 outbreak (Aslam et al 2020b;Aslam et al 2020c;Aslam et al 2020d). During such a crisis, it becomes very important to track the extent of that crisis and to issue early warnings by measuring the spillovers among stock markets (Diebold and Yılmaz 2012).…”

“…Increasing empirical literature focuses on the financial impacts of COVID-19 by applying diverse statistical techniques (Akhtaruzzaman et al 2020;Ashraf 2020;Aslam et al 2020b;Aslam et al 2020c;Baker et al 2020;Sharif et al 2020;Topcu and Gulal 2020;Zhang et al 2020). Very recently, Yarovaya et al (2020), using DOW Jones world index and Islamic sakkuk index data argued that Islamic bonds (Sukuk) showed properties of being a safe haven during the ongoing COVID crisis.…”

Dynamic spillovers and connectedness between COVID-19 pandemic and global foreign exchange markets

“…Many of the papers surveyed in this study have focused on volatility transmissions across various regions and considering divergent markets. Worthy of mention is the European FX markets (see, e.g., Bub ak et al, 2011;Cai et al, 2008;Greenwood-Nimmo et al, 2016;Nikkinen et al, 2006), the International real estate market (see, e.g., Antonakakis et al, 2016;Caporin et al, 2019;Hoesli & Reka, 2011;Liow & Huang, 2018), International equity markets (see, e.g., Albulescu, 2020;Diebold & Yilmaz, 2009), major currency markets (see, e.g., Albulescu et al, 2019;Aslam et al, 2020;Salisu et al, 2018), cryptocurrency markets (see, e.g., Corbet et al, 2020;Lahmiri & Bekiros, 2020) among others. However, in recent times, we have noticed an emerging strand of literature on the impact of global pandemics on spillover transmissions between markets (see, e.g., Albulescu, 2020;Corbet et al, 2020;Youssef et al, 2006) with none having examined the contribution of COVID-19 to spillover transmissions among global currency pairs.…”