Chinese Superstition and Foreign Currency Returns

Abstract

We examine the potential effect of Chinese superstition on returns in eight major currencies. We focus on market responses to days that are superstitiously deemed by the Chinese to be either lucky or unlucky. After controlling for the weekend and calendar month anomalies, our results suggest that lucky day 8 in the month is associated with significant lower currency returns for four currencies (Canadian dollars, Euros, Swiss Francs, and British Pounds). In contrast, lucky day 18 is associated with significant higher currency returns for Australian dollars, and unlucky day 24 is associated with significant higher returns for Euros. The results support the argument that Chinese manufacturers convert the foreign currency receipt into US dollars on day 8, and that Chinese companies buy Australian dollars on day 18, possibly to pay for importing natural resources. Our evidence is also consistent with the argument that the Chinese Government buys Euros in unlucky day 24 for investment in European Government debt securities.