This will take some research by someone that has more computing firepower and data access than me, but it’s highly disturbing.
Take a look at illiquid markets (basically, indices which are tied to currencies that don’t trade among the top 10, some euro zone members qualify for this as well) and correlate the currency moves to market opening times. It’s not perfect, but in a 1 hour give or take around market open/close times depending on the risk and performance of the index, the currency will go up as the market opens, and down as it closes. This has been rather pronounced the last few weeks. Basically, if the country market is expected to perform well but rather illiquid, the currency rush will be early, and otherwise, the currency rush is later. In some instances of particularly bad days (prior markets have traded -3% or more), the correlation is inverted and the currency sells off after market open.
So, basically, if you’re not a worldwide asset manager and can take a little bit more risk in currencies than most, and don’t really have a fancy for equity speculation so you can keep stuff firmly in currency, this may be extremely profitable. Keep in mind, you will need to make a lot more research off this topic if you go in. This is one of my late-night-email/market-checking hunches that held up decently well the day after. I wouldn’t call anyone sane that took this trade with what I have provided here as supporting evidence.
Why is this, as I mentioned earlier, disturbing?
Well, it says that 1. No one is willing to take “overnight” risks in assets and would rather sell off and put their money to use somewhere else if the market is closed. Fundamentals are out the window and we’re sailing on the breath of central bankers and politicians to cross an ocean of fear. 2. Liquidity is that important, because the traders for the bigger institutions may be strapped for cash to adjust the positions in open markets, and it’s worth the potential loss of returns in closed markets to maintain this liquidity in bigger USD or EUR denominated markets. 3. It explains why market rallies in a lot of European and Asian markets have been hard to sustain. The fundamental supply of money isn’t there to maintain rising asset prices.
This could be really bad. I am considering whether my previous bearish calls are strong enough when these mechanics start showing up in the markets.