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

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Resumen

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.
Idioma originalInglés
Páginas (desde-hasta)50-58
Número de páginas9
PublicaciónInternational Economics
Volumen167
Fecha en línea anticipada1 jun. 2021
DOI
EstadoPublicada - oct. 2021

Nota bibliográfica

Funding Information:
We thank Paula Armas for research assistance. We gratefully acknowledge the financial support of the Research Center at Universidad del Pacífico (CIUP). We alone are responsible for the views expressed in this paper and for any remaining errors.

Publisher Copyright:
© 2021 CEPII (Centre d'Etudes Prospectives et d'Informations Internationales), a center for research and expertise on the world economy

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