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Preferred Habitat, Window Dressing, or Both? Evidence From Foreign Exchange Swaps in Taiwan

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  • Hao-Chen Liu

    (College of Charleston, USA)

  • Mark David Witte

    (College of Charleston, USA)

Abstract

In this paper, we use a unique dataset to examine the cause of return irregularity in financial markets around the end of the year. Year-end return irregularities are often attributed to either window-dressing or preferred habitat. We study year-end return irregularities in the foreign exchange swap market. We find that the return of a contract ending before the end of the year is lower than the return of a contract ending after the beginning of the year. The results support the existence of the preferred habitat and provide some evidence of window dressing in foreign exchange swaps.

Suggested Citation

  • Hao-Chen Liu & Mark David Witte, 2019. "Preferred Habitat, Window Dressing, or Both? Evidence From Foreign Exchange Swaps in Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(03), pages 1-20, September.
    • Handle: RePEc:wsi:rpbfmp:v:22:y:2019:i:03:n:s0219091519500152
    DOI: 10.1142/S0219091519500152
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    References listed on IDEAS

    as
    1. Musto, David K, 1997. "Portfolio Disclosures and Year-End Price Shifts," Journal of Finance, American Finance Association, vol. 52(4), pages 1563-1588, September.
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    3. Furfine, Craig H., 2004. "Public disclosures and calendar-related movements in risk premiums: evidence from interbank lending," Journal of Financial Markets, Elsevier, vol. 7(1), pages 97-116, January.
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    5. Kotomin, Vladimir & Smith, Stanley D. & Winters, Drew B., 2008. "Preferred habitat for liquidity in international short-term interest rates," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 240-250, February.
    6. Brown, Philip & Chua, Angeline & Mitchell, Jason, 2002. "The influence of cultural factors on price clustering: Evidence from Asia-Pacific stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 10(3), pages 307-332, June.
    7. Ogden, Joseph P., 1987. "The End of the Month as a Preferred Habitat: A Test of Operational Efficiency in the Money Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(3), pages 329-343, September.
    8. Liu, Hao-Chen & Witte, Mark David, 2013. "The microstructure of covered interest arbitrage in a market with a dominant market maker," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 25-41.
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