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

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 shortterm 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