The Nexus of COVID-19 Pandemic, Foreign Exchange Rates, and Short-Term Returns
Abstract
The current study examines short-term abnormal returns of eight major currencies including EUR/USD, GBP/USD, USD/AUD, USD/CAD, USD/CHF, USD/CNY, USD/JPY, and USD/SEK in response to the evolution of the COVID-19 pandemic using event study approach in three different scenarios. Firstly, short-term abnormal returns of major currencies are estimated on the day of World Health Organization’s (WHO) announcement declaring COVID-19 as a pandemic. Secondly, they are estimated on the day of the announcement of the first confirmed case of COVID-19 in the respective country. Thirdly, they are estimated on the day of the announcement of the first death from COVID-19 in each country. The results provided evidence that major currency investors earned positive returns in these three different scenarios. The implications of the current study are more important than anticipated. Government policymakers, foreign exchange market regulators, and foreign exchange market participants can anticipate short-term returns while establishing foreign exchange policies, designing rules and regulations, and finalizing trading and hedging strategies, respectively, in situations such as the current COVID-19 pandemic.
Received Date: September 20, 20202 Last Received: October 23, 2020 Acceptance: November 13, 2020
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Copyright (c) 2020 Ali Farhan Chaudhry
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