Title

A Profitable Trading Rule For Net Borrowers On Settlement Wednesday

Abstract

Griffiths and Winters (1995) suggest that the rules and regulations of the bank settlement process create incentives such that banks optimizing their reserve account management will borrow on settlement Wednesday to obtain the funds necessary to meet Federal Reserve Board mandated reserves. We develop a trading rule for settlement Winesday that reduces the cost of borrowing by exploiting the predicted daily trading behavior of the Federal Reserve Open Market Desk. The strategy reduces the cost of borrowing by approximately $43,333 per $1 billion on an annualized basis in simulated trading. Our results reinforce that optimal reserve account management is a function of the rules and regulations governing overnight money markets.

Publication Date

6-1-1999

Publication Title

Quarterly Review of Economics and Finance

Volume

39

Issue

1

Number of Pages

129-146

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/s1062-9769(99)80008-8

Socpus ID

0033098164 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/0033098164

This document is currently not available here.

Share

COinS