Do forward exchange rate conditions intervene with the transmission of stock market volatility and COVID-19 impact? Sign and location-based asymmetries

Tabash M.I. Sheikh U.A. Roubaud D. Galariotis E. Grebinevych O.
May 2025 Elsevier Ltd

Research in International Business and Finance
2025 #77

This study is the first to estimate the differential impact of bearish, bullish, and moderate quantiles of stock market volatility (SV) and COVID-19 case counts on the forward exchange rates (FERs) in South Asia—specifically, those of Pakistan, India, Sri-Lanka, and Bangladesh over 3-, 6-, 9-, and 12-month periods using an augmented QARDL model. Prior research has focused on the portfolio balance effect in transmitting financial market shocks to spot-based foreign exchange markets, largely overlooking the role of SV and FERs across different quantiles and investment horizons (short- and long-term). The findings confirm the presence of both sign- and location-based asymmetries in the transmission process of shocks from SV to FERs. For South Asian businesses involved in international trade, it is essential to consider these varying short- and long-term effects of stock market volatility across quantiles of FERs. This understanding underscores the need for a more nuanced investment approach and is vital for making informed decisions regarding hedging strategies, pricing, and the management of currency risk in cross-border transactions.

COVID-19 , Forward exchange rates , Location-based asymmetries , Portfolio balance approach , QARDL model , Sign-based asymmetries , Stock market volatility

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College of Business, Al Ain University, Al Ain, United Arab Emirates
Faculty of Management Studies, University of Central Punjab, Pakistan
Montpellier Business School, Montpellier, France
Gulf Financial Center, Gulf University for Science and Technology, Hawally, Kuwait
Bang College of Business, KIMEP University, 4 Abay Avenue, Almaty, 050010, Kazakhstan

College of Business
Faculty of Management Studies
Montpellier Business School
Gulf Financial Center
Bang College of Business

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