The January effect in the foreign exchange market: Evidence for seasonal equity carry trades

Eric Girardin () and Fatemeh Salimi Namin

Economic Modelling, 2019, vol. 81, issue C, 422-439

Abstract: In this study, we investigate monthly seasonality in the foreign exchange market. Given the well-known recurrent higher returns in some month than in others in stock markets around the world, we consider it likely that a seasonal outperformance of a country’s stock market over another is associated with similar seasonal patterns in capital flows and exchange rates. A seasonal profit (carry trade) opportunity can be created by the simultaneous appreciation of a country’s currency and the outperformance of its stock market. By focusing on the world’s key currency pairs, the US dollar-Deutsche mark and the US dollar-euro, and by using a Markov-switching framework, we document persistent January and December effects in the foreign exchange market from 1971 to 2017. Analysis of the German-US stock returns differential and their bilateral capital flows reveal similar month effects in 65% of the whole sample.

Keywords: Seasonality; Month effect; Foreign currency market; UEP; Markov-switching; Carry trade (search for similar items in EconPapers)
JEL-codes: F21 F31 G12 G15 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999318308551
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The January effect in the foreign exchange market: Evidence for seasonal equity carry trades (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:81:y:2019:i:c:p:422-439

DOI: 10.1016/j.econmod.2019.07.021

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().