 Investor behavior in the currency option market during the COVID-19 pandemicWael Dammak, Nahla Boutouria, Salah Ben Hamad and Christian de Peretti The Journal of Economic Asymmetries, 2023, vol. 28, issue C Abstract: This study investigates the COVID-19 pandemic's impact on investor behavior in the currency options market, emphasizing its relationship with underlying exchange rates. Using a sample of daily data from select futures continuous calls from September 22, 2016, to December 31, 2021, we introduce a novel variable, “market imperfections,” to quantify the gap between observed and theoretical currency option prices based on the Garman and Kohlhagen model. Through the application of a Markov switching model, we identify pandemic-related changes in investor behavior, characterized by patterns of divergence and convergence. Our research distinguishes between two key behavioral types in the market: fundamentalists and chartists. This study enriches the literature by clarifying how crises, specifically the COVID-19 period, influence investor dynamics and affect market responses. Overall, we provide critical insights into the factors shaping behavior during challenging periods. Keywords: Behavioural finance; Market imperfections; Garman and Kohlhagen's model; Two-state Markov switching model; Fundamentalists and chartists; COVID-19 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:28:y:2023:i:c:s170349492300049x DOI: 10.1016/j.jeca.2023.e00337 Access Statistics for this article The Journal of Economic Asymmetries is currently edited by A.G. Malliaris More articles in The Journal of Economic Asymmetries from Elsevier |
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