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Dynamic spillovers and connectedness between COVID-19 pandemic and global foreign exchange markets

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  • Ismail O. Fasanya
  • Oluwatomisin Oyewole
  • Oluwasegun B. Adekoya
  • Jones Odei-Mensah

Abstract

This paper examines dynamic spillovers and connectedness between global covid-19 occurrences and the Global FX market. We specifically analyse the spillovers using six most traded currency pairs in the world utilizing daily data for the period December 31, 2019 to April 10, 2020. The paper employs the Diebold and Yilmaz (DY hereafter) (2009, 2012) approach to compute the spillover indexes. We also consider the rolling window analyses to capture the secular and cyclical movement in the financial markets over the period of consideration. Our findings indicate high degree of interdependence between the global covid-19 occurrences and returns volatility of the majorly traded currency pairs. Interestingly, both the returns and volatility spillover indexes exhibit both trend and bursts over the period of pandemic. Our results are robust to the different VAR lag structure. Policymakers are advised to monitor the effects of global COVID-19 announcement and assess the net effect of financial market volatility on the behaviour of the global FX markets in order address new and enhanced risks caused by the upsurge of the COVID-19 pandemic.

Suggested Citation

  • Ismail O. Fasanya & Oluwatomisin Oyewole & Oluwasegun B. Adekoya & Jones Odei-Mensah, 2021. "Dynamic spillovers and connectedness between COVID-19 pandemic and global foreign exchange markets," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 34(1), pages 2059-2084, January.
    • Handle: RePEc:taf:reroxx:v:34:y:2021:i:1:p:2059-2084
    DOI: 10.1080/1331677X.2020.1860796
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    Citations

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    Cited by:

    1. Hsuan Fu & Jui‐Chung Yang, 2022. "International currency markets and the COVID‐19 pandemic," Pacific Economic Review, Wiley Blackwell, vol. 27(4), pages 400-422, October.
    2. Boakye, Robert Owusu & Mensah, Lord Kwaku & Kang, Sang Hoon & Osei, Kofi Acheampong, 2023. "Foreign exchange market return spillovers and connectedness among African countries," International Review of Financial Analysis, Elsevier, vol. 86(C).
    3. Darko B. Vuković & Senanu Dekpo-Adza & Vladislav Khmelnitskiy & Mustafa Özer, 2023. "Spillovers across the Asian OPEC+ Financial Market," Mathematics, MDPI, vol. 11(18), pages 1-23, September.
    4. Yao Xiao & Zibing Dong & Shihua Huang & Yanshuang Li & Jian Wang & Xintian Zhuang & Stefan Cristian Gherghina, 2023. "Time-Frequency Volatility Spillovers among Major International Financial Markets: Perspective from Global Extreme Events," Discrete Dynamics in Nature and Society, Hindawi, vol. 2023, pages 1-20, May.
    5. Candelon, Bertrand & Moura, Rubens, 2023. "Sovereign yield curves and the COVID-19 in emerging markets," Economic Modelling, Elsevier, vol. 127(C).
    6. Umar, Zaghum & Polat, Onur & Choi, Sun-Yong & Teplova, Tamara, 2022. "Dynamic connectedness between non-fungible tokens, decentralized finance, and conventional financial assets in a time-frequency framework," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).

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