Investigation of emerging market stress under various frequency bands: Evidence from FX market uncertainty and liquidity

Samet Gunay, Barbara Dömötör () and Attila András Víg

Emerging Markets Review, 2025, vol. 65, issue C

Abstract: This study investigates the relationship between Emerging Markets Financial Stress Index (EMFSI) and currency returns, uncertainty and liquidity of eight emerging economies, using MODWT, Wavelet Coherence, TVP-VAR analyses. The results indicate that interactions become more pronounced during political events rather than economic developments. Energy market developments also appear to be significant periods for the interaction of variables, especially for Saudi Arabia and the UAE. Finally, the findings related to investment horizon suggest that short-term spillovers may be linked to medium- to long-term correlations between the EMFSI and currency pairs. This could serve as an early warning for policymakers and investors.

Keywords: MODWT; Wavelet coherence; TVP-VAR frequency connectedness; Emerging market's financial stress; FX market liquidity and uncertainty; Investment horizon (search for similar items in EconPapers)
JEL-codes: C32 G01 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:65:y:2025:i:c:s1566014125000111

DOI: 10.1016/j.ememar.2025.101262

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