The impact of COVID-19 on the efficiency of exchange rate, stock and cryptocurrency markets

Purpose We investigate how the COVID-19 pandemic affected the efficiency of exchange rate, stock and cryptocurrency returns by analyzing a well-known calendar anomaly, the turn-of-the-month (TOM) effect. Design/methodology/approach We define the TOM days as the final trading day of a month and the initial three trading days of the immediate next month. To understand the TOM effect, we estimate the typical ordinary least squares regression model using the Heteroskedasticity and Autocorrelation Consistent (HAC) standard errors and covariances. Findings Our findings indicate that the returns during TOM days are significantly higher relative to those of non-TOM days. Nonetheless, our findings further reveal that the COVID-19 pandemic intensifies the TOM effect for the equity markets but weakens it for the exchange rate and Ethereum markets. We then develop a trading strategy that is found to beat the typical buy-and-hold (BH) approach. Practical implications Based on these results, we create a trading strategy which is found to surpass the BH strategy. Our results provide useful implications for investors and policymakers, as the considered markets can be timed by taking positions, especially based on the behavior of the TOM effect. Originality/value First, this paper is the inaugural study to examine the TOM effect across equity, currency and cryptocurrency markets. Previous studies have not addressed the TOM effect in Ethereum markets. Second, our paper conducts a battery of validity tests to ensure that the studied anomaly is not confounded by erstwhile anomalies. Third, our paper explores the performance of studied anomalies both prior to and throughout the COVID-19 pandemic to gain a deeper understanding of market efficiency. Finally, we validate our findings using the Kruskal–Wallis test, free from the assumptions of normal distribution.