Weekly Pattern of Exchange Rate Risks: Evidence from Ten Asian-Pacific Currencies

Abstract

This paper examines the day-of-the-week effect on the currency returns of ten Asian-Pacific countries and differs from previous studies in that it tests directly the effect on higher moments of currency returns. Using ten-year daily data, the results first show that currency returns are non-normally distributed, particularly with very large kurtosis. The hypothesis of equal higher moments (e.g., skewness or kurtosis or both) cannot be rejected by any pair of weekdays only for the Australian dollar. For the remaining nine currencies, the same hypothesis is rejected by at least one pair of weekdays. Six currencies reject the hypothesis in all pairs of weekdays, supporting the existence of the day-of-the-week effect on higher moments. Further analysis shows that Rogalski's effect exists on the higher moments of three currencies because the day-of-the-week effect exists only in non-January months. Sub-period analysis indicates that the weekly patterns on higher moments are quite consistent across two sub-periods for all currencies except the Taiwanese dollar.