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

Walter Bazán-Palomino and Diego Winkelried

International Economics, 2021, vol. 167, issue C, 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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:167:y:2021:i:c:p:50-58

DOI: 10.1016/j.inteco.2021.05.006

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