Calendar anomalies’ adaptiveness in exchange rates: evidence from the concordance coefficient and AR-GARCH tests

Abstract

Purpose

This research aims to examine the time-varying behavior of the Weekend, Turn-of-the-Month, January, and Halloween effects in eight foreign exchange rates against the U.S. dollar from the Adaptive Market Hypothesis (AMH) perspective. It also explores whether these anomalies can generate excess returns compared to a buy-and-hold strategy.

Design/methodology/approach

Using daily return data from January 2004 to December 2023 in a rolling-window framework, the study employs the Concordance Coefficient test and AR-GARCH models to assess the time-varying behavior of four calendar anomalies. It also assesses the statistical significance of the trading strategies implied by these anomalies using t-tests and applies F-tests for subperiod analysis.

Findings

The results reveal a generalized time-varying presence of calendar anomalies in emerging currencies and, to a lesser extent, developed currencies. However, the trading strategies implied by these anomalies generally did not show statistical significance, except for the Turn-of-the-Month effect, which exhibited statistically significant unprofitability.

Originality/value

The study pioneers an analysis of five calendar anomalies across various currencies from the standpoint of the AMH and proposes case-specific explanations for their occurrence. It also examines the potential for the anomalies’ implied trading strategies to generate excess returns compared to a straightforward buy-and-hold strategy. Additionally, the study introduces the recently developed Concordance Coefficient test as a valuable alternative to other non-parametric methods.