Changing efficiency of BRICS currency markets during the COVID-19 pandemic

Abstract

This paper studies the information efficiency of BRICS currency markets during the COVID-19 pandemic using daily data spanning 3rd February 2020–31st August 2021. In our preliminary analysis, which consists of tests for random walk and martingale processes, we provide evidence of time-varying weak-form market efficiency in the currency markets. In our main empirical analysis, we use wavelet coherence tools to examine the time–frequency relationship between COVID-19 death rates and BRICS currency returns, and we find higher frequency components dominate periods of panic and financial turmoil. However, subsequent to government intervention in financial markets and the more recent rollout of mass vaccination programmes, we find that higher frequency oscillations disappear, and only very low-frequency co-movements remain. Important academic, market and policy implications derived from our study are discussed.