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Day-of-Week Effects in Tests of Forward Foreign Exchange Rate Unbiasedness

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  • Breuer, Janice Boucher

Abstract

The day of the week on which the forward rate is quoted and the day of the week on which the corresponding one-period ahead spot rate matched to the delivery date of the forward contract is quoted may play a systematic role in the empirical estimates of the coefficient on the forward premium in tests of forward foreign exchange rate unbiasedness. These "day-of-week" effects are motivated from an inventory carrying cost argument as in Bessembinder (1994) and introduced into a simple model for forward foreign exchange market efficiency. Empirical results show that the point estimates are generally consistent with the hypotheses; however, large standard errors make discriminatory power weak and conclusions regarding the role of inventory carrying costs in the magnitude of the forward premium bias debatable. Copyright @ 1999 by John Wiley & Sons, Ltd. All rights reserved.

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  • Breuer, Janice Boucher, 1999. "Day-of-Week Effects in Tests of Forward Foreign Exchange Rate Unbiasedness," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(3), pages 193-204, July.
    • Handle: RePEc:ijf:ijfiec:v:4:y:1999:i:3:p:193-204
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    Cited by:

    1. Saša Popović & Andrija Đurović, 2014. "Intraweek and intraday trade anomalies: evidence from FOREX market," Applied Economics, Taylor & Francis Journals, vol. 46(32), pages 3968-3979, November.
    2. Baker, H. Kent & Rahman, Abdul & Saadi, Samir, 2008. "The day-of-the-week effect and conditional volatility: Sensitivity of error distributional assumptions," Review of Financial Economics, Elsevier, vol. 17(4), pages 280-295, December.

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