A calendar effect: weekend overreaction (and subsequent reversal) in spot FX ratesDao, T. M., McGroarty, F. and Urquhart, A. ORCID: https://orcid.org/0000-0001-8834-4243 (2016) A calendar effect: weekend overreaction (and subsequent reversal) in spot FX rates. Journal of Multinational Financial Management, 37. pp. 158-167. ISSN 1042-444X Full text not archived in this repository. It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing. To link to this item DOI: 10.1016/j.mulfin.2016.11.001 Abstract/SummaryThis 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 over- reaction 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 strat- egy is able to generate abnormal risk-adjusted returns, which suggests that these currency markets might be weak-form inefficient.
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