A calendar effect: weekend overreaction (and subsequent reversal) in spot FX rates

This 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