Return-enhancing strategies with international ETFs

Exploiting the turn-of-the-month effect

Abstract

We show that the average return over the four-day period surrounding the turn of the month is significantly positive in eight out of the nine international exchange-traded funds (ETFs). The strategy of buying-and-holding an ETF during turn-of-the-month (TOM) period and switching to holding T-bills during non-TOM period produces significantly positive monthly average returns. This ETF- T-bills switching strategy also has the lowest risk and highest Sharpe ratio and Sortino ratio than the traditional strategy of buying-and-holding either an index fund or an ETF. Investors pursuing this switching strategy generate a terminal value twice larger than the next best strategy of buying-and- holding an ETF.