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

Posted: 23 Aug 2001

See all articles by Lloyd P. Blenman

Lloyd P. Blenman

University of North Carolina (UNC) at Charlotte - Department of Finance & Business Law

Janet S. Thatcher

University of Wisconsin - Whitewater

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 signs. 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.

Suggested Citation

Blenman, Lloyd P. and Thatcher, Janet S., Synthetic Trades and Calendar Day Patterns: The Case of the Dollar/Sterling Markets. Available at SSRN: https://ssrn.com/abstract=274386

Lloyd P. Blenman (Contact Author)

University of North Carolina (UNC) at Charlotte - Department of Finance & Business Law ( email )

9201 University City Blvd.
Charlotte, NC 28223
United States
704-687-7705 (Phone)

Janet S. Thatcher

University of Wisconsin - Whitewater ( email )

800 W. Main
College of Business and Economics Department of Finance
Whitewater, WI 53190
United States
(262) 472-5462 (Phone)
(262) 472-4863 (Fax)

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