A profitable trading rule for net borrowers on settlement Wednesday

Craig R. Brown; Mark D. Griffiths; Wayne E. Hansen; Drew B. Winters

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

A profitable trading rule for net borrowers on settlement Wednesday

Craig R. Brown, Mark D. Griffiths, Wayne E. Hansen, Drew B. Winters

Business Administration

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

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.

Original language	English
Pages (from-to)	129-146
Number of pages	18
Journal	Quarterly Review of Economics and Finance
Volume	39
Issue number	1
DOIs	https://doi.org/10.1016/s1062-9769(99)80008-8
State	Published - Jun 1 1999

Access to Document

10.1016/s1062-9769(99)80008-8

Cite this

@article{5f77e02075194b76bffeb93c15ff3bc8,

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.",

author = "Brown, {Craig R.} and Griffiths, {Mark D.} and Hansen, {Wayne E.} and Winters, {Drew B.}",

year = "1999",

month = jun,

day = "1",

doi = "10.1016/s1062-9769(99)80008-8",

language = "English",

volume = "39",

pages = "129--146",

journal = "Quarterly Review of Economics and Finance",

issn = "1062-9769",

number = "1",

}

TY - JOUR

T1 - A profitable trading rule for net borrowers on settlement Wednesday

AU - Brown, Craig R.

AU - Griffiths, Mark D.

AU - Hansen, Wayne E.

AU - Winters, Drew B.

PY - 1999/6/1

Y1 - 1999/6/1

N2 - 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.

AB - 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.

UR - http://www.scopus.com/inward/record.url?scp=0033098164&partnerID=8YFLogxK

U2 - 10.1016/s1062-9769(99)80008-8

DO - 10.1016/s1062-9769(99)80008-8

M3 - Article

AN - SCOPUS:0033098164

SN - 1062-9769

VL - 39

SP - 129

EP - 146

JO - Quarterly Review of Economics and Finance

JF - Quarterly Review of Economics and Finance

IS - 1

ER -

A profitable trading rule for net borrowers on settlement Wednesday

Abstract

Access to Document

Other files and links

Fingerprint

Cite this