Do Come Back After May
‘Sell in May and go away’ has had its fair share of supporters and detractors over the years. For FX markets, seasonality is often used as post-hoc rationalisation of price action, but if a critical mass of market participants believes in the theory, the view can become self-fulfilling. We find that ‘May malaise’ in FX markets characterised by higher volatility is more of a recent phenomenon, but a combination of event risk resolution and central bank action has always managed to reverse whatever instability that surfaces. In the longer-term though, policy and financial normalisation should mean that seasonality in volatility should not show up at all. After all, given its depth the FX market should be as close to full efficiency as any asset market can be, eliminating any scope for seasonality.
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