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Floating exchange rate efficiency: Grouping patterns and pandemic impacts

Author

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  • Corzo, Teresa
  • Martin-Bujack, Karin
  • Portela, Jose
  • Rodriguez-Gallego, Alejandro

Abstract

This study investigates the efficiency of global floating exchange rates spanning 19 years from 2004 to 2022. We examine the presence of long memory in a sample of twenty-five floating exchange rates against the US Dollar, representing 63 % of 2022 global GDP. To that end, we rely on rolling window estimates of the Hurst coefficient using Detrended Fluctuation Analysis (DFA) and Generalized Hurst Exponent (GHE) methodologies focusing on the impact of the COVID crisis. Repercussions of the COVID-19 pandemic on efficiency clearly emerge. Complementing previous partial studies, we obtain patterns that group currencies according to their pandemic efficiency reaction, presenting a comprehensive understanding of the dynamics of floating exchange rates. The broad sample of currencies analyzed allows the identification of two distinct groups of currencies, revealing a temporary shift in FX markets away from efficiency, with one group exhibiting prolonged deviations. Given the importance of the forex market, our empirical findings hold substantial implications for the broader finance community.

Suggested Citation

  • Corzo, Teresa & Martin-Bujack, Karin & Portela, Jose & Rodriguez-Gallego, Alejandro, 2025. "Floating exchange rate efficiency: Grouping patterns and pandemic impacts," International Economics, Elsevier, vol. 182(C).
    • Handle: RePEc:eee:inteco:v:182:y:2025:i:c:s2110701725000149
    DOI: 10.1016/j.inteco.2025.100591
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    Keywords

    Currencies; Forex market; Market efficiency; Fractal analysis; COVID-19;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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