May

17

 Its is my hypothesis that overnight markets are not as efficient as day sessions, which leaves certain opportunities to gain an edge.

It appears overnight market are used heavily, by the big money to contain risk, with any left field events bringing the resident allocated night hedger into the frame. Certainly it seems that this person will quickly size up the situation, and usually will take the safest option to hedge the desk book.

When all traders are back on deck the next morning, a group decision can be reached about the state of the "book" and what the best way forward is, however an individual without the collective input of his peers is reluctant to push any boundaries. Whether this book is being covered by a person, who is allocated to do the job overnight in the home country, or is passed to an overseas desk, (to a certain extent this is inconsequential), no one will usually trade against the status quo, and risk having to explain themselves.

In Australia, once a month, there is the same" jouno guy", who mentions his thoughts about the immediate interest rate environment, in the the financial papers — released about midnight Sydney time. The local overnight bond market will react in line with the risk, regardless of whether any credible sources are quoted. However the next morning board meetings are held, the collective view is exchanged, and surprise surprise, more often than not, the previous night's hedges are lifted.

This must be tested with specific numbers, and not withstanding the size of the overnight market and its draw on overnight participants from different regions … but one view against many can become quite intimidating.


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