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Investigation of emerging market stress under various frequency bands: Evidence from FX market uncertainty and liquidity

Author

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  • Gunay, Samet
  • Dömötör, Barbara
  • Víg, Attila András

Abstract

This study investigates the relationship between Emerging Markets Financial Stress Index (EMFSI) and currency returns, uncertainty and liquidity of eight emerging economies, using MODWT, Wavelet Coherence, TVP-VAR analyses. The results indicate that interactions become more pronounced during political events rather than economic developments. Energy market developments also appear to be significant periods for the interaction of variables, especially for Saudi Arabia and the UAE. Finally, the findings related to investment horizon suggest that short-term spillovers may be linked to medium- to long-term correlations between the EMFSI and currency pairs. This could serve as an early warning for policymakers and investors.

Suggested Citation

  • Gunay, Samet & Dömötör, Barbara & Víg, Attila András, 2025. "Investigation of emerging market stress under various frequency bands: Evidence from FX market uncertainty and liquidity," Emerging Markets Review, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:ememar:v:65:y:2025:i:c:s1566014125000111
    DOI: 10.1016/j.ememar.2025.101262
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    More about this item

    Keywords

    MODWT; Wavelet coherence; TVP-VAR frequency connectedness; Emerging market's financial stress; FX market liquidity and uncertainty; Investment horizon;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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