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Exchange rate expectation, abnormal returns, and the COVID-19 pandemic

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  • Beckmann, Joscha
  • Czudaj, Robert L.

Abstract

This study analyzes the impact of the COVID-19 pandemic on exchange rates based on a comprehensive set of survey forecasts for more than 50 currency pairs. At the first stage, we assess whether the policy to manage the COVID-19 pandemic affects the expected path of exchange rates over the medium and long run. At the second stage, we adopt an event study analysis and identify the occurrences of abnormal returns on foreign exchange markets since the start of the COVID-19 pandemic. Our results suggest the presence of cumulated excess returns that are partly driven by macroeconomic fundamentals for major currencies. However, we find that policy responses to the COVID-19 pandemic have the strongest effect on cumulated excess returns, showing that foreign exchange markets take expected policy effects as an important determinant of future developments into account while expectations for minor currencies react stronger to response policies.

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  • Beckmann, Joscha & Czudaj, Robert L., 2022. "Exchange rate expectation, abnormal returns, and the COVID-19 pandemic," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 1-25.
    • Handle: RePEc:eee:jeborg:v:196:y:2022:i:c:p:1-25
    DOI: 10.1016/j.jebo.2022.02.002
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    Cited by:

    1. Ngo Thai Hung & Vo Xuan Vinh, 2023. "Asymmetric impact of the COVID-19 pandemic on foreign exchange markets: Evidence from an extreme quantile approach," Economics and Business Letters, Oviedo University Press, vol. 12(1), pages 20-32.
    2. Naveed, Hafiz Muhammad & HongXing, Yao & Memon, Bilal Ahmed & Ali, Shoaib & Alhussam, Mohammed Ismail & Sohu, Jan Muhammad, 2023. "Artificial neural network (ANN)-based estimation of the influence of COVID-19 pandemic on dynamic and emerging financial markets," Technological Forecasting and Social Change, Elsevier, vol. 190(C).
    3. Klose, Jens, 2023. "European exchange rate adjustments in response to COVID-19, containment measures and stabilization policies," Economic Modelling, Elsevier, vol. 128(C).

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    More about this item

    Keywords

    Abnormal returns; COVID-19 pandemic; Exchange rates; Expectations; Survey data;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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