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The weekend trading profitability: evidence from international mutual funds

M. Imtiaz Mazumder (), Edward Miller and Oscar Varela
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Edward Miller: University of New Orleans

No 2004-10, Working Papers from University of New Orleans, Department of Economics and Finance

Abstract: The weekend effect is described as the tendency for Monday security returns to be low (or negative) compared to other days of the week. The weekend effect may not be exploited by trading individual stocks because of transactions costs. However, the institutional characteristics of the US-based international open-end mutual funds may allow investors to exploit the weekend effect because mutual funds lack much of the transactions costs associated with individual stocks. This paper extends the study of Compton and Kunkel (1999), Varela (2002), and Miller, Prather and Mazumder (2003) by examining the weekend predictability and profitable trading opportunities for international mutual funds. The rationale behind the weekend predictability and profitability of international funds lies on the fact that the Net Asset Values (NAVs) of international funds are computed from stale prices of the underlying assets of these funds. The sample of international funds is divided into two sub-samples and the initial sub-sample is used to test the weekend effect and develop trading strategies. Returns of trading strategies are then evaluated out-of-sample and compared with the returns of a buy-and-hold strategy. Empirical findings suggest that smart investors may earn higher risk-adjusted returns by following daily dynamic trading strategies. Results also document that trading strategies based on the weekend effect produce higher risk-adjusted returns. Finally market timing models are also tested for trading strategy returns and Treynor-Mazuy and Henriksson-Merton timing measures are positive and statistically significant. Moreover, the trading rules of this study may be useful in future if fair value pricing or other institutional regularities eliminate any profitable trading opportunity based on the US market signals.

Keywords: Mutual funds; Weekend effect; Trading rule; Market efficiency (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-fmk and nep-rmg
Date: 2005-01
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