FX markets’ reactions to COVID-19: Are they different?

Walter Bazán-Palomino and Diego Winkelried

International Economics, 2021, issue 167, 50-58

Abstract: In this paper, we empirically investigate the impact of the COVID-19 pandemic on FX markets. We find important differences between COVID-19 and previous high-risk episodes: the Global Financial Crisis, the Swiss National Bank's removal of the Swiss franc/euro floor, and Brexit. Contrary to these episodes, the USD did not show any safe haven characteristics during the pandemic. Furthermore, the estimated volatility and non-parametric value-at-risk of three currency portfolios indicate that COVID-19 was not as risky as previous stressful events. We provide evidence that investors could minimize COVID-19 risk by investing in the Canadian dollar and the Japanese yen, and by reducing their exposure to European currencies.

Keywords: Currency portfolios; Volatility; Diversification; COVID-19 (search for similar items in EconPapers)
JEL-codes: F31 G15 G18 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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Journal Article: FX markets’ reactions to COVID-19: Are they different? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2021-q3-167-14

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