Asymmetric and time-frequency based networks of currency markets

Abstract

We examine asymmetries in the volatility spillover of international currency markets over the short and long run, with a focus on the COVID-19 pandemic. In doing so, we propose partial quantile coherency network approach. Our results indicate heterogeneous behaviour of currencies’ volatility networks under various market conditions across investment time horizons. The volatility networks are driven by developed currency markets and by geographical proximity in Europe and Asia. We do not find asymmetry in the dependence structures of positive and negative currency volatilities. The dependence structure changes during COVID-19 especially in the long run. Many currencies show disentangled behaviour, which suggests their hedging and diversification potential.

Keywords: Forex markets, quantile coherency, network connectedness, COVID-19 pandemic

JEL Classification: A11, F31