The Impact of COVID-19 on Weak-Form Efficiency in Cryptocurrency and Forex Markets

The COVID-19 pandemic has had an unprecedented impact on the global economy and financial markets. In this article, we explore the impact of the pandemic on the weak-form efficiency of the cryptocurrency and forex markets by conducting a comprehensive comparative analysis of the two markets. To estimate the weak-form of market efficiency, we utilize the asymmetric market deficiency measure (MDM) derived using the asymmetric multifractal detrended fluctuation analysis (A-MF-DFA) approach, along with fuzzy entropy, Tsallis entropy, and Fisher information. Initially, we analyze the temporal evolution of these four measures using overlapping sliding windows. Subsequently, we assess both the mean value and variance of the distribution for each measure and currency in two distinct time periods: before and during the pandemic. Our findings reveal distinct shifts in efficiency before and during the COVID-19 pandemic. Specifically, there was a clear increase in the weak-form inefficiency of traditional currencies during the pandemic. Among cryptocurrencies, BTC stands out for its behavior, which resembles that of traditional currencies. Moreover, our results underscore the significant impact of COVID-19 on weak-form market efficiency during both upward and downward market movements. These findings could be useful for investors, portfolio managers, and policy makers.