Global FX Markets under Stress: A Quantile Evidence on Contemporaneous and Lagged Tail-Risk Transmission

This study examines tail-risk transmission in global foreign exchange (FX) markets using a quantile contemporaneous and lagged R²-decomposed connectedness framework. Daily returns for eight major FX pairs (EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, USD/CNY, and NZD/USD) are analysed over the full sample from 3 January 2006 to 12 June 2026 and across five major stress episodes. The crisis periods cover the Global Financial Crisis, the European Debt Crisis, the COVID-19 pandemic shock, the Russia–Ukraine war shock and the monetary policy tightening era. The empirical framework combines six major approaches (quantile regression, pseudo-R² decomposition, directional connectedness, network analysis, hedge and portfolio performance evaluation). The results show that contemporaneous connectedness dominates lagged connectedness across all quantiles, indicating that FX shocks are transmitted mainly through same-day adjustment. However, lagged transmission is more prominent during crisis periods, especially at the lower and upper tails. AUD/USD emerges as a persistent net transmitter of lower-tail shocks, while EUR/USD–USD/CHF, AUD/USD–NZD/USD and EUR/USD–GBP/USD represent important bilateral channels. Network results confirm that FX dependence is stronger in the tails than at the median while hedge and portfolio results show that dynamic hedging reduces exchange-rate risk more effectively than static diversification. Overall, the evidence demonstrates that global FX tail-risk transmission is quantile-dependent, crisis-sensitive and directionally heterogeneous.