Weekend Effect, 'Reverse' Weekend Effect, and Investor Trading Activities

Abstract:   In this study, we document evidence of a 'reverse' weekend effect – whereby Monday returns are significantly positive and they are higher than the returns on other days of the week – over an extended period of eleven years (from 1988 to 1998). We also find that the 'traditional' weekend effect and the 'reverse' effect are related to firm size in that the 'traditional' weekend effect tends to be associated with small firms while the 'reverse' weekend effect tends to be associated with large firms. In addition, we find that during the period in which the 'reverse' weekend effect is observed, Monday returns for large firms tend to follow previous Friday returns when previous Friday returns are positive , but they do not follow the previous Friday returns when Friday returns are negative . Furthermore, we find that during the period in which the 'reverse' weekend effect is observed, Monday returns are positively related to the volume of medium‐size and block transactions, but negatively related to the volume of odd‐lot transactions.     

The “reverse” weekend effect: the U.S. market versus international markets

In this paper we find that the “reverse” weekend effect—where average Monday returns tend to be positive—is a unique feature of the U.S. market. During the time the U.S. market exhibits the reverse weekend effect, foreign markets still show the “traditional” weekend effect or no effect at all. The results persist even after we sort the data by week of the month and month of the year. We also find that in foreign markets negative Monday returns tend to follow negative Friday returns. However, in the U.S. market, positive Monday returns tend to follow positive Friday returns.     

A note on weekday, intraday, and overnight patterns in the interbank foreign exchange and listed currency options markets

Transactions data are used to investigate returns patterns for close-to-close, close-to-open, and intraday long positions in spot currency (interbank) and currency put options (listed) for the years 1983 through 1988. Both trading-day and calendar-day hypotheses are investigated. Under the former, spot market returns are found to be significantly higher from Friday close to Monday close and from Friday close to Monday open. Under the calendar-day hypothesis, however, no significant close-to-close pattern emerges, and the Friday close to Monday open effect is reversed. Finally, spot (put) market returns are found to be significantly lower (higher) for Tuesday and Friday afternoons.     

Day-of-the-week and intraday effects in stock returns

This study examines day-of-the-week effects using hourly values of the Dow Jones Industrial Average. We find that over the 1963–1983 period the weekend effect has sifted from characterizing active trading on Monday to characterizing the non-trading weekend. Over the early part of our sample period negative returns characterize each hour of trading on Monday, while the return from Friday close to Monday open is positive. In the most recent subperiod, Monday average hourly returns after noon are all positive and the weekend effect is due to negative average returns from Friday close to Monday open.     

New Findings Regarding Day-of-the-Week Returns over Trading and Non-Trading Periods: A Note

This paper decomposes daily close to close returns into trading day and non-trading day returns. We discover that all of the average negative returns from Friday close to Monday close documented in the literature for stock market indexes occurs during the non-trading period from Friday close to Monday open. In addition, average trading day returns (open to close) are identical for all days of the week. January/firm size/turn-of-the-year anomalies are shown to be interrelated with day-of-the-week returns.     

A transaction data study of weekly and intradaily patterns in stock returns

Weekly and intradaily patterns in common stock prices are examined using transaction data. For large firms, negative Monday close-to-close returns accrue between the Friday close and the Monday open; for smaller firms they accrue primarily during the Monday trading day. For all firms, significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens. On Monday mornings, prices drop, while on the other weekday mornings, they rise. Otherwise the pattern of intraday returns is similar on all weekdays. Most notable is an increase in prices on the last trade of the day.     

Short Selling and the Weekend Effect for NYSE Securities

Using short-sale transactions data, we examine the relation between short selling and the weekend effect. We do not find that short selling is more abundant on Monday than on Friday, even for stocks that have higher Friday returns. We find that short sellers execute more short-sale volume during the middle of the week, and that the positive correlation between short selling and returns on Monday is greater, on average, than the correlation on the other days of the week. Our results are robust to subsamples of stocks with larger weekend effects and stocks that do not have listed options.     

Weekend gold returns in bull and bear markets

This study examines the weekend effect in gold returns during bull and bear markets over the period 1975 through 2011. It shows that gold returns from close on Friday to close on Monday are significantly lower than returns during the rest of the week. This result is due largely to gold returns during bear markets. During gold bull markets, gold weekend returns are not significantly different from weekday returns. The study shows that the effect has substantial economic implications for gold investors. The effect is shown to be related to a significantly negative skewness in the weekend returns.     

A Further Investigation of the Weekend Effect in Stock Returns

This study uses a longer time period and additional stocks to further investigate the weekend effect. We find consistently negative Monday returns (1) for the S & P Composite as early as 1928, (2) for Exchange-traded stocks of firms of all sizes, and (3) for actively traded over-the-counter (OTC) stocks. The OTC results are based on bid prices and therefore appear to reject specialist-related explanations. For the 30 individual stocks of the Dow Jones Industrial Index, the average correlation between Friday and Monday returns is positive and the highest of all pairs of successive days. The latter finding is inconsistent with fairly general measurement-error explanations.     

Another New Look at the Monday Effect

We link up the findings of Abraham and Ikenberry (1994) and Wang, Li and Erickson (1997) by showing that negative Monday returns concentrate on days 18 to 26 of a month and they can be completely explained in the statistical sense by the negative returns on the previous Friday. More importantly, we observe a 'week–four effect'. Not only the returns on Mondays but also returns on other days are lower during the fourth week of a month. We suggest that liquidity selling by individual investors may be the reason.     

DAY OF THE WEEK EFFECTS: A TEST OF THE INFORMATION TIMING HYPOTHESIS

Many explanations have been offered for the negative Monday effect. An obvious conjecture is that the negative return might be due to firms timing the release of information after the market closes on Friday. We test this conjecture on a sample of 233 firms for 1986. Using a firm's board meeting date as a proxy for high information days we find that a firm's Monday return near a board meeting date is more likely to be negative than other Monday returns. Also the remaining days of the week tend to be more positive than similar days further away from the board meeting. Our results appear to explain part of the negative Monday effect.     

The day-of-the-week effect in conditional correlation

The day-of-the-week effect in the first and second moments of the return distribution is a well researched area. However, not many studies have attempted to identify this effect in the comovement or correlation of the markets. This paper models the day-of-the-week effect in the returns and the conditional correlation for some Asia-Pacific equity markets. The paper finds a Monday, Wednesday and Friday effects in the returns for some of the markets. The effect is totally absent in the returns for Australia, Japan and Korea. For the fifteen conditional correlation series estimated, a predominant Tuesday effect is detected for five series. Three series exhibit a Monday effect. A Thursday effect is detected between the Singapore market and the markets of Australia, Hong Kong and Thailand. The paper finds no consistent day-of-the-week effect in the returns and the correlations for this region. JEL Classification G15 · G14     

The Monday effect revisited: An alternative testing approach

This paper questions traditional approaches for testing the Monday effect of stock returns. We propose an alternative, multiple hypothesis testing approach based on the closure test principle which controls the multiple type I error. We consider the US, the UK and the German stock markets and test Monday related pairwise comparisons of daily expected stock returns, while the probability of committing any type I error is always kept smaller than a prespecified level α, for each combination of true null hypotheses. Overall, the new testing approach supports previous findings of a Monday effect for the 1970s and 1980s, in particular for the US and Germany, while it suggests that the Monday effect has vanished in the 1990s and 2000s in all three markets. The comparison of the closure test procedure, the traditional multiple t-test and the Bonferroni test, a classical multiple test procedure, shows that traditional testing may result in spurious significance while the Bonferroni test may sometimes be too conservative.     

The Weekend Effect, 'Reverse' Weekend Effect, and Firm Size

In this paper, we find a 'reverse%rsquo; weekend effect — whereby returns for Monday are positive and significantly greater than returns for the preceding Friday — in recent data for major stock indexes. We also find that, while a weak weekend effect exists in portfolios of smaller firms, the effect begins to diminish and weak 'reverse' weekend effect begins to appear in medium size firms. The 'reverse' weekend effect becomes strong and statistically significant in portfolios of large firms. The detection of a 'reverse' weekend effect in portfolios of large firms is a new finding in the literature.     

INTERNATIONAL EVIDENCE ON WEEKEND ANOMALIES

Recent studies on the U.S. market find that the Monday effect is observed mainly when the return on the previous Friday is negative or when the Monday falls within the last two weeks of the month. I look for international evidence and examine whether such properties of the Monday effect are related to another anomalous phenomenon—high weekend correlation. By examining twenty‐three equity market indexes, I find that the negative Friday is, in general, important to the Monday effect. Furthermore, Monday returns tend to be lowest on the fourth week of the month. Although high weekend correlation is also common to these markets, it seems not related to the bad‐Friday factor and shows no seasonality across weeks of the month. JEL classification: G15, G10.     

The Friday Effect in European Securitized Real Estate Index Returns

This study extends research on the day-of-the-week effect towards European real estate indices. We examine this anomaly for several European securitized real estate index returns between 1990 and 2003. Although the countries under analysis have unique country-specific patterns, we find that eight out of eleven European countries exhibit abnormally high Friday returns. Moreover, two different Europe indices also exhibit the Friday anomaly. The anomaly is robust with respect to extreme observations, alternative specifications and several well-known calendar effects.     

An empirical analysis of the day-of-the-week effect in stock returns: The case of U.S. and Japan

This article employs daily closing index data to investigate the relationship between the U.S. and Japanese equity markets. It reassesses and extends the Becker et al. (1990) methodology over a longer sample space. The article then advances the analysis further by estimating structural equation models and by including the exchange rate as an additional explanatory variable. The resulting multivariate econometric design shows that the U.S. equity market strongly affects the Japanese equity market Monday through Friday while the Japanese market exerts a weaker influence on the U.S. market with the influence observed only on Mondays and Wednesdays.     

European day-of-the-week effects,beta asymmetries and international herding*

European equity markets with the most robust day-of-the-week effects in mean returns also exhibit day-of-the-week effects in risk. Betas measured relative to a world index are higher on Monday than on other days of the week, especially when returns on the world market are negative. After adjustments for beta asymmetries and for weekend vs weekday holding period horizons, day-of-the-week effects in residual risk and risk-adjusted mean returns weaken substantially compared to such effects measured with constant betas. These findings are consistent with the recent work of King and Wadhwani (1990), Froot et al. (1992) and Lakonishok and Maberly (1990).     

GOOD NEWS, BAD NEWS, VOLUME, AND THE MONDAY EFFECT

New evidence is presented on the nature of the Monday effect in stock market returns. Using stock returns for the years 1962-1986, the Monday effect is found to be confined to periods of negative market returns. Monday's returns are no different from other weekday returns in periods of positive returns. In addition, trading volume and the Monday effect are related. Monday's volume is lower than the other weekdays. When returns are compared controlling for trading volume, we find that the Monday effect is confined to negative return periods with above normal volume, which represent only two per cent of the sample period.     

Reversal of Monday returns

This paper elaborates an interesting aspect of the Monday anomaly: Monday returns are relatively more likely to reverse over the subsequent days. We document that, although the Monday low-return anomaly disappeared, the subsequent reversal of Monday returns remains robust to date. The reversals, measured over a five-day horizon, are pervasive across international stock markets, reasonably stable over time, significant following both positive and negative Monday returns, and not confined to extreme Monday returns. Trading strategies designed to exploit these reversals earn economic profits. We examine potential explanations for the reversal of Monday returns using trading flows data of investor types from Korea. All predictions of the Foster and Viswanathan [J. Finance, 1993, 48, 187–211] model are confirmed: volatility is higher, trading volume is lower, market depth is lower and price impact costs are higher on Mondays. The model implies lower price quality on Mondays, but does not specifically predict reversal of Monday returns. We show that the trading intensity of international/institutional investors is lower on Mondays. This appears to make the market relatively more susceptible to individual investors’ trading, which is negatively correlated with international/institutional investors. Thus, Monday returns are relatively more likely to reverse during the subsequent days of the week when institutional investors trade more aggressively.