Covid-19’s Fever on Financial Markets in China: The Interaction Between Foreign Exchange Market and the Stock Market

Serpil KAHRAMAN
Görkem SARIYER

Abstract
Although the effects of the COVID-19 pandemic on economies are different, financial markets have followed a similar path. Financial economy approaches reveal that the financial markets of the countries will be affected primarily as a result of an external shock. Accordingly, in an external effect, the stock markets of developing countries or the exchange rate market are affected in the first stage, and this effect spreads to the other market in the second stage. The study investigates the preliminary impact of the pandemic on the Chinese stock market and foreign exchange market covering data on COVID-19, relations between epidemic statistics (daily numbers of new cases and new deaths) by comparing the pre-pandemic and post-pandemic periods by performing Pearson correlation analysis. Moreover, box plots are comparatively presented to show the daily distributions of the SSEC index and CNY exchange rate. Because the determination of the first affected market will guide policymakers in terms of eliminating the high volatility and risk factor in the markets. The results show that there is a significant interaction between the two markets and that neither market behaves randomly. This link is very important for determining macroeconomic policies against a random walk. The main research question of the article is whether monetary policy interventions have a positive effect on increasing the efficiency of financial markets. The findings of the study indicate that even the stock prices follow random walk, due to the EMH the source of the price movement is seen informative. It can be said that the Chinese money market is now in an upward trend due to the relative decrease in uncertainty and pessimistic expectations in the following period.
Keywords: COVID-19, Foreign Exchange Market, Stock Market, Random Walk, Efficient Market Hypothesis (EMH).
Jel Codes: F31, E41, F61, F37.

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