Unveiling Time-Frequency Quantile Connectedness in the Asian Forex Market

Abstract

This study examines the quantile connectedness between foreign exchange returns of eight major currencies in the Asian foreign exchange market during two major crises: the Global Financial Crisis of 2008 and the COVID-19 Pandemic Crisis. This paper uses the Quantile Vector Auto-Regression method (QVAR) by exploring the time and frequency connectedness among the Asian foreign exchange market under extreme events. Based on the daily exchange rate data of eight major Asian currencies from 2005 to 2024, the results show that the connectedness measures in the left and right tails are much higher than those in the median. This indicates that return connectedness strengthens with shock for both positive and negative shocks, showing that shocks to returns propagate more intensely during extreme events relative to tranquil periods. The paper concludes that going beyond mean-based connectedness measurements is necessary to comprehend return connection under extreme negative and extreme positive shocks. These results provide valuable insights to investors and policymakers regarding risk mitigation under global uncertainties.