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Synthetic Trades and Calendar Day Patterns: The Case of the Dollar/Sterling Markets

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  • Thatcher, Janet S
  • Blenman, Lloyd P

Abstract

Significant day of the week patterns are shown to exist in the dollar/sterling market. These patterns are associated with the returns to synthetic and actual forward trades as well as to spot trades. These trading strategies, geared to buying or selling sterling, reflect different timing, if not valuation, considerations on the part of traders. Nevertheless, pronounced calendar patterns are observed on Wednesdays for all the trading strategies evaluated. This is attributable to significantly different risks on Wednesdays. The observed end-of-the-week patterns in forward returns persist and reinforce the returns at the start of the next week of trading. Furthermore, the overall returns to forward speculation on Fridays and Mondays are of opposite sign. Our results on calendar day patterns are thus supported by both parametric and non-parametric tests. We provide evidence that the frequency of synthetic trading opportunities is inversely related to maturity. We also find that the period of market turbulence analyzed did not trigger abnormal opportunities for covered interest arbitrage. Copyright 2001 by MIT Press.

Suggested Citation

  • Thatcher, Janet S & Blenman, Lloyd P, 2001. "Synthetic Trades and Calendar Day Patterns: The Case of the Dollar/Sterling Markets," The Financial Review, Eastern Finance Association, vol. 36(2), pages 177-199, May.
    • Handle: RePEc:bla:finrev:v:36:y:2001:i:2:p:177-99
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    Cited by:

    1. M. Imtiaz Mazumder & Edward M. Miller & Oscar A. Varela, 2010. "Market Timing the Trading of International Mutual Funds: Weekend, Weekday and Serial Correlation Strategies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7-8), pages 979-1007.
    2. Laurence E. Blose & Vijay Gondhalekar, 2013. "Weekend gold returns in bull and bear markets," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(3), pages 609-622, September.
    3. Vijay Singal & Jitendra Tayal, 2020. "Risky short positions and investor sentiment: Evidence from the weekend effect in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(3), pages 479-500, March.
    4. Nippani, Srinivas & Pennathur, Anita K., 2004. "Day-of-the-week effects in commercial paper yield rates," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(4), pages 508-520, September.
    5. M. Imtiaz Mazumder & Edward M. Miller & Oscar A. Varela, 2010. "Market Timing the Trading of International Mutual Funds: Weekend, Weekday and Serial Correlation Strategies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7‐8), pages 979-1007, July.

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