Profitability and risk in cryptocurrency markets: testing the Halloween effect and investment strategies

Evangelos Vasileiou, Christos Floros and Konstantinos Gkillas

Journal of Economic Studies, 2025, vol. 53, issue 4, 839-860

Abstract: PurposeThe purpose of this study is to investigate the presence of the Halloween effect in the cryptocurrency market and assess its practical implications for investors. By focusing on five major cryptocurrencies (BTC, ETH, XRP, BNB and ADA), the study aims to determine whether returns during the Halloween period (October 31–April 30) outperform the rest of the year and identify associated risks. It also seeks to evaluate investment strategies based on the Halloween effect, providing insights for investors on the viability of seasonal trading strategies in the context of high-risk, high-volatility assets like cryptocurrencies.Design/methodology/approachUsing data from 2018 to 2024, we examine five major cryptocurrencies (BTC, ETH, XRP, BNB and ADA), excluding stablecoins for more accurate results. Descriptive statistics reveal leptokurtosis, volatility clustering and asymmetric volatility, guiding the use of GARCH family models for further analysis. We compare returns and volatility during the Halloween period (October 31–April 30) with the rest of the year, evaluating investment strategies and their performance in relation to risk profiles across different cryptocurrencies.FindingsThe empirical evidence shows that cryptocurrencies exhibit higher returns during the Halloween period (October 31–April 30) compared to the rest of the year, although this period is associated with increased risk. Volatility analysis reveals significant differences between Halloween and non-Halloween periods, with most cryptocurrencies (except BTC) showing outperformance during Halloween. Additionally, a leverage effect is observed in BTC, ETH and BNB, while XRP demonstrates an anti-leverage effect. The Halloween-based investment strategy outperforms both the No-Halloween and Buy-and-Hold strategies for most assets, suggesting that, depending on risk tolerance, investors may benefit from a Halloween-focused approach.Originality/valueThis study explores inefficiencies in the cryptocurrency market, specifically focusing on calendar anomalies, with an emphasis on practical investment strategies. It excludes high-frequency trading strategies due to the potential impact of transaction costs on profitability. The Halloween effect is examined, as it requires only two transactions per year and has been less studied in the context of cryptocurrencies. The study reveals that Halloween periods generally offer higher returns, though at an increased risk. It also identifies a leverage effect in BTC, ETH and BNB, while XRP shows an anti-leverage effect. The findings suggest that a Halloween-based strategy could outperform traditional investment strategies, depending on risk tolerance.

Keywords: Calendar anomalies; Halloween effect; Investment strategies; Asymmetric volatility (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-01-2025-0029

DOI: 10.1108/JES-01-2025-0029

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