The disease outbreak channel of exchange rate return predictability: evidence from COVID-19

Bernard Njindan Iyke

Research output: Contribution to journalArticleResearchpeer-review

177 Citations (Scopus)


We provide novel evidence that disease outbreaks contain valuable information that can be used to enhance exchange rate return and volatility predictions. Our analysis exploits the novel coronavirus (COVID-19) outbreak as a good experimental setup to test our intuition. Data show that the COVID-19 outbreak has been rapid and deadly. Using the total number of infections per million, we demonstrate that COVID-19 has better predictive power over volatility than over returns for a one-day ahead forecast horizon. Conversely, COVID-19 tends to shape returns more than volatility over a five-day ahead forecast horizon. Our findings remain intact over the two forecast horizons using the total number of deaths per million as an alternative COVID-19 measure. This evidence supports a new channel of exchange rate return predictability, namely the disease outbreak channel.

Original languageEnglish
Pages (from-to)2277-2297
Number of pages21
JournalEmerging Markets Finance and Trade
Issue number10
Publication statusPublished - 8 Aug 2020
Externally publishedYes


  • COVID-19
  • disease outbreaks
  • exchange rate return and volatility
  • novel coronavirus
  • pandemic
  • predictability

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