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

Hao-Chen Liu

http://orcid.org/0000-0002-7466-9474

College of Charleston, USA

E-mail Address: liuh@cofc.edu

Corresponding author.

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and

Mark David Witte

College of Charleston, USA

E-mail Address: wittem@cofc.edu

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https://doi.org/10.1142/S0219091519500152Cited by:0 (Source: Crossref)

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.

Keywords:

JEL: F31, F41

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