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.
| Original language | English |
|---|---|
| Pages (from-to) | 50-58 |
| Number of pages | 9 |
| Journal | International Economics |
| Volume | 167 |
| Early online date | 1 Jun 2021 |
| DOIs | |
| State | Published - Oct 2021 |
Bibliographical note
Publisher Copyright:© 2021 CEPII (Centre d'Etudes Prospectives et d'Informations Internationales), a center for research and expertise on the world economy
Keywords
- Currency portfolios
- volatility
- diversification
- COVID-19
- Volatility
- Diversification
