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Article

Day-of-the-Month Effects in the Performance of
Momentum Trading Strategies in the Foreign
Exchange Market

Richard D.F. Harris, Evarist Stoja and Fatih Yilmaz
The Journal of Trading Winter 2009, 4 (1) 48-55; DOI: https://doi.org/10.3905/JOT.2009.4.1.048
Richard D.F. Harris
is a professor of finance at the University of Exeter in Exeter, U.K.
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  • For correspondence: r.d.f.harris@exeter.ac.uk
Evarist Stoja
is a lecturer in finance at the University of Bristol in Bristol, U.K.
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  • For correspondence: e.stoja@bristol.ac.uk
Fatih Yilmaz
is a principal at Bank of America in London, U.K.
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  • For correspondence: fatih.yilmaz@bankofamerica.com
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Abstract

This article documents a very strong day-of-the-month effect in the performance of momentum strategies in the foreign exchange market. It shows that this seasonality in trading strategy performance is attributable to seasonality in the conditional volatility of foreign exchange returns, and in the volatility of conditional volatility. Indeed, a two-factor model employing conditional volatility and the volatility of conditional volatility explains as much as 70% of the intra-month variation in the Sharpe ratio. The article further shows that the seasonality in volatility is in turn closely linked to the pattern of U.S. macroeconomic news announcements, which tend to be clustered around certain days of the month.

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Day-of-the-Month Effects in the Performance of
Momentum Trading Strategies in the Foreign
Exchange Market
Richard D.F. Harris, Evarist Stoja, Fatih Yilmaz
The Journal of Trading Dec 2008, 4 (1) 48-55; DOI: 10.3905/JOT.2009.4.1.048

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Day-of-the-Month Effects in the Performance of
Momentum Trading Strategies in the Foreign
Exchange Market
Richard D.F. Harris, Evarist Stoja, Fatih Yilmaz
The Journal of Trading Dec 2008, 4 (1) 48-55; DOI: 10.3905/JOT.2009.4.1.048
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  • Article
    • Abstract
    • THE DAY-OF-THE-MONTH EFFECT IN MOMENTUM TRADING STRATEGIES
    • THE IMPORTANCE OF VOLATILITY DYNAMICS
    • THE INFLUENCE OF NEWS
    • SUMMARY AND IMPLICATIONS
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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