A calendar effect: weekend overreaction (and subsequent reversal) in spot FX rates

Dao, TM ORCID: https://orcid.org/0000-0002-1926-495X, McGroarty, F and Urquhart, A, 2016. A calendar effect: weekend overreaction (and subsequent reversal) in spot FX rates. Journal of Multinational Financial Management, 37-38, pp. 158-167. ISSN 1042-444X

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Abstract

This paper investigates a calendar effect, namely the weekend overreaction, in spot foreign exchange markets of 8 major and 9 emerging currencies. We find that after a large price difference between Friday close and subsequent Monday open, most markets are likely to reverse in multiple horizons during the following week, which is consistent with the overreaction hypothesis. We develop a reversal trading strategy to exploit this effect which we show are robust to transaction costs and interest rates. In the out-of-sample test, the strategy is able to generate abnormal risk-adjusted returns, which suggests that these currency markets might be weak-form inefficient.

Item Type:	Journal article
Publication Title:	Journal of Multinational Financial Management
Creators:	Dao, T.M., McGroarty, F. and Urquhart, A.
Publisher:	Elsevier
Date:	December 2016
Volume:	37-38
ISSN:	1042-444X
Identifiers:	Number Type 10.1016/j.mulfin.2016.11.001 DOI S1042444X16300998 Publisher Item Identifier
Divisions:	Schools > Nottingham Business School
Record created by:	Linda Sullivan
Date Added:	15 Jan 2019 09:36
Last Modified:	17 Jan 2019 12:36
URI:	https://irep.ntu.ac.uk/id/eprint/35555

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