Original scientific paper
https://doi.org/10.1080/1331677X.2020.1860796
Dynamic spillovers and connectedness between COVID-19 pandemic and global foreign exchange markets
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.
Keywords
Covid-19; FX market; returns; volatilities; vector autoregression (VAR); forecast error variance; spillover index
Hrčak ID:
301272
URI
Publication date:
31.12.2021.
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