The “day-of-the-week” effects in the exchange rate of Latin American currencies

Abstract

This paper examines the “day-of-the-week” anomaly in the foreign exchange market of six major Latin American countries’ currencies: (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), all with respect to the United States’ dollar. The returns of daily exchange rates are stationary, so we use linear regressions combined with GARCH, TARCH and EGARCH models to explore the presence of the “day-of-the-week” anomaly. The results confirm the presence of “abnormal” effects in some of the currencies and in some days of the week, particularly on Fridays and Mondays. Moreover, volatility in exchange rates shows clustering behavior, as well as leverage effects, which are carefully modelled in our analysis. This paper contributes to the literature by studying the “day-of-the-week” effects in currency exchange rate markets, a clear innovation with respect to the typical stock market analysis. The results reported are useful for foreign exchange market traders, currency exposure management decision makers, monetary authorities, and financial policy designers in the countries included in the study. Indeed, the results suggest the presence of a typical behavior of the exchange rate of all the currencies included in the sample.

Are there “day-of-the-week” and “holiday” anomalies in the mexican stock market?

“…However, there is increasing evidence of the existence of market anomalies (Gayaker, Yalcin, & Berument, 2020;Plastun, Sibande, Gupta, & Wohar, 2020;Rossi, 2015). Among these anomalies are the so-called calendar (or seasonal 1 ) effects such as the Day-of-the-Week (DOW) Effect (Anwar, Okot, & Suhendra, 2021;Santillán Salgado, Fonseca Ramírez, & Nelson Romero, 2019;Tadepalli & Jain, 2018;Vogelaar, Pimenta, Lima, & Gaio, 2014;Yardımcı & Erdem, 2020;Zhang, Lai, & Lin, 2017) and the Holiday Effect (HE) (Caporale & Plastun, 2017;Dumitriu & Stefanescu, 2020;Eidinejad & Dahlem, 2021;Marques, 2014;Mazviona, Mah, & Choga, 2021). The DOW and HE anomalies studied in the context of the MSE are the subject of interest in this paper.…”