Policy Decisions and the Irrational Behavior of the Thai Foreign Exchange Market during the COVID-19 Recession

Purpose - This paper examines the efficiency of the Thai foreign exchange market during the COVID-19 recession, with particular attention to policy decisions, investor behavior, and market volatility. It investigates whether the THB/USD exchange rate followed a random walk, and explores the influence of irrational trading and government interventions. Design/Methodology/Approach - Using econometric tests, including the Augmented Dickey-Fuller (ADF) test, Autocorrelation Function (ACF) test, Runs test, and Variance Ratio test, this study analyzes the THB/USD exchange rate from January 1, 2020, to June 30, 2022, with special focus on the panic phase (January 1 - April 1, 2020). The methodology evaluates market efficiency, behavioral anomalies, and the role of policy interventions during the crisis. Findings - The results indicate that the Thai foreign exchange market displayed weak-form efficiency, with exchange rates following a random walk, but failed to meet semi-strong efficiency. Market stability relied heavily on government intervention, which enabled certain actors to potentially earn abnormal returns. Research Implications - The study suggests that while Thailand’s FX market maintained weak-form efficiency during COVID-19, effective crisis management requires central banks to complement traditional policy tools with the consideration of behavioral factors such as herding and panic-driven trading.