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Gold, Crude Oil and the Weekend Effect: A Probability Distribution Approach. 2011

by on November 2, 2013

This 2011 paper finds that there is no weekend effect present in gold. Instead they find that Thursday returns are significantly positive and Tuesday returns are significantly negative. They hypothesise from this as markets becoming more efficient – as traders become aware of the weekend effect they begin to buy on a Thursday to get ahead of demand and sell on a Tuesday to avoid the lower than average returns. This they argue has in effect pushed the weekend effect out.

Data: Daily London PM fix, 1986 – 2007

Methodology: Probability Distribution Analysis

Citation: Yu, Hai-Chin, and Tung-Li Shih. “Gold, Crude Oil and the Weekend Effect: A Probability Distribution Approach.” Investment Management and Financial Innovations 8.2 (2011): 39-51.

Abstract: Using probability distribution approach, the results show that the traditional weekend effect no longer exist in either the gold or oil markets. Friday does not show the highest return and Monday does not show the lowest return. Instead, a Thursday effect seems to appear in the gold market, while a Wednesday effect is in the oil market. Results of these findings imply that the trading behaviour and investors’ beliefs change with the passing of time. These beliefs change may result from the changes in information opaqueness, the completeness of markets, internet trading and the settlement procedure also find that the traditional holding period in the gold market has been lengthened, from Thursday (one day earlier than the traditional Friday) to the following Tuesday (one day later than the traditional Monday). As for the oil, a shortening holding period from Wednesday to Friday and a leftward return distribution is found. The plausible interpretation for the longer investors’ holding period in regard to gold may relate to that gold is value-preserving. In the case of oil, the shortened period may be due to its larger volatility. The results of this study provide some implications of risk management for both policy-makers and investors who trade the commodity markets on a frequent basis or a long-term view.

 

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