The response of emerging financial markets to IMF news during COVID-19 pandemic

This article compares the influence of IMF related news announcements on currency and stock markets before and during the coronavirus pandemic in an event study and regression framework. Our event horizon includes a total of 116 IMF event news, of which 64 are associated with emerging countries (as our key test assets) and 52 are associated with developed countries (as controls), spanning the period from January 2017 to December 2020. Our central finding is that IMF news exert significant impact on emerging currency and stock markets, but the conclusion about the direction of this news effect depends on our choice of model specification (event study versus regression), event news type (bad versus good news), and the cross-market spillover effects between currency and stock markets in the wake of the pandemic. • We examine the joint response of currency and stock markets to IMF news. • We use VAR GARCH-M model to allow for cross-market linkages. • We find that IMF news exert a significant impact on currency and stock returns. • We also find that the direction of IMF-impact is dependent on cross-market spillover effects between currency and stock markets.