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

Eric Girardin () and Fatemeh Salimi Namin
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Fatemeh Salimi Namin: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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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)
Date: 2019-09
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-02314156
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Citations: View citations in EconPapers (3)

Published in Economic Modelling, 2019, 81, pp.422-439. ⟨10.1016/j.econmod.2019.07.021⟩

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Journal Article: The January effect in the foreign exchange market: Evidence for seasonal equity carry trades (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02314156

DOI: 10.1016/j.econmod.2019.07.021

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