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.     

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.     

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.     

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.     

The wandering weekday effect in major stock markets

This paper reports a wandering weekday effect: the pattern of day seasonality in stock market returns is not fixed, as assumed in the Monday or weekend effects, but changes over time. Analysing daily closing prices in eleven major stock markets during 1993–2007, our results show that the wandering weekday is not conditional on average returns in the previous week (the “twist” in the Monday effect). Nor does it diminish through the period of analysis. The results have important implications for market efficiency, and help to reconcile mixed findings in previous studies, including the reported disappearance of the weekday effect in recent years.     

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.     

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.     

On the determinants of “small” and “large” foreign exchange market interventions: The case of the Japanese interventions in the 1990s

During the past 30 years, central banks have often intervened in foreign exchange markets, and the magnitude of their foreign exchange market interventions has varied widely. We develop a quantitative reaction function model that renders it possible to examine the determinants of “small” and “large” interventions. We apply the model to analyzing the intervention policy of the Japanese monetary authorities (JMA) in the yen/U.S. dollar market during the period from 1991 through 2001. To this end, we use recently released official data on the foreign exchange market interventions of the JMA. We find that the JMA tended to conduct large interventions when the yen/U.S. dollar exchange rate drifted away from an “implicit target exchange rate.”     

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.     

The Reversing Weekend Effect: Evidence from the U.S. Equity Markets

The well-known weekend effect has been reversing in Major U.S. indices from late 1980s to late 1990s. The correlation between Monday and Friday returns also exhibited a declining trend, and fluctuated around zero in the 1990s. A power ratio method is developed to measure consistently the relative contribution of Friday and Monday returns to the return of the week in each individual year. The revealed dynamics of the anomaly explains why previous researchers report different or conflicting findings. The anomaly may not be necessarily related to firm size.     

The Weekend and 'Reverse' Weekend Effects: An Analysis by Month of the Year, Week of the Month, and Industry

In this paper, we examine whether the 'reverse' weekend effect recently documented by Brusa, Liu and Schulman (2000) is concentrated in a few industries or widely spread across all the industries. The findings in this paper indicate that the 'reverse' weekend effect exists not only in broad indices, but also in most industries . The results suggest that the 'reverse' weekend effect may be driven by economic events that affect all industries, rather than industry‐specific factors . Although the patterns of Monday returns are similar between broad indices and industry indices, they are different between the pre ‐ and the post ‐1988 periods. Monday returns tend to be negative in the pre ‐1988 period, but tend to be positive in the post ‐1988 period, for both broad market indices and industry indices. These conclusions are valid even after considering the influence of the month‐of‐the‐year and the week‐of‐the‐month effects.     

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 Role of U.S. Market on International Risk‐Return Tradeoff Relations

We study the intertemporal risk‐return tradeoff relations based on returns from 18 international markets. We find striking new empirical evidence that the inclusion of U.S. market returns significantly changes the estimated risk‐return tradeoff relations in international markets from mostly negative to predominantly positive. Our results are consistent with the lead‐lag effect between U.S. and international markets in the sense of Rapach, Strauss and Zhou.     

The empirical risk–return relation: A factor analysis approach

Existing empirical literature on the risk–return relation uses relatively small amount of conditioning information to model the conditional mean and conditional volatility of excess stock market returns. We use dynamic factor analysis for large data sets, to summarize a large amount of economic information by few estimated factors, and find that three new factors—termed “volatility,” “risk premium,” and “real” factors—contain important information about one-quarter-ahead excess returns and volatility not contained in commonly used predictor variables. Our specifications predict 16–20% of the one-quarter-ahead variation in excess stock market returns, and exhibit stable and statistically significant out-of-sample forecasting power. We also find a positive conditional risk–return correlation.     

Seasonal and Day-of-the-Week Effects in Four Emerging Stock Markets

The “January effect” and the “weekend effect” have proven to be persistent anomalies in U.S. equity markets. The objective of this paper is to examine seasonal and daily patterns in equity returns of four emerging markets: Hong Kong, Singapore, Malaysia, and the Philippines. These markets are gaining importance with the globalization of business; therefore, it is necessary to examine the efficiency and functioning of these capital markets. Our analysis uses daily data for the 12 years from September 1, 1976, to June 30, 1988. The results support the existence of a seasonal pattern in these markets. Returns in the month of January are higher than any other month for all markets examined except the Philippines. A robust day-of-the-week effect is also found. These markets exhibit a weekend effect of their own in the form of low Monday returns. In addition, there exists a strong “Tuesday effect,” which may be related to the + 13 hour time difference between New York and these emerging markets.     

Do mutual funds time the market? Evidence from portfolio holdings

Previous research finds insignificant market-timing ability for mutual funds using tests based on fund returns. The return-based tests, however, are subject to the “artificial timing” bias. In this paper, we propose and implement new measures of market timing based on mutual fund holdings. Our holdings-based measures do not suffer from the artificial timing bias. We find that, on average, actively managed U.S. domestic equity funds have positive timing ability. Market timing funds use non-public information to predict market returns, tend to have high industry concentration, large fund size, a tilt toward small-cap stocks, and are active in industry rotation.     

Exchange market pressure and absorption by international reserves: Emerging markets and fear of reserve loss during the 2008–2009 crisis

This paper evaluates how the global financial crisis emanating from the U.S. was transmitted to emerging markets. Our focus is on the extent that the crisis caused external market pressures (EMP), and whether the absorption of the shock was mainly through exchange rate depreciation or the loss of international reserves. Controlling for variety of factors associated with EMP, we find clear evidence that emerging markets with higher total foreign liabilities, including short- and long-term debt, equities, FDI and derivative products—had greater exposure and were much more vulnerable to the financial crisis. Countries with large balance sheet exposure – high external portfolio liabilities exceeding international reserves—absorbed the global shock by allowing greater exchange rate depreciation and comparatively less reserve loss. Despite the remarkable buildup of international reserves by emerging markets during the period prior to the financial crisis, countries relied primarily on exchange rate deprecation rather than reserve loss to absorb most of the exchange market pressure shock. This could reflect a deliberate choice (“fear of reserve loss”) or market actions that caused very rapid exchange rate adjustment, especially in emerging markets with open capital markets, overwhelming policy actions.     

Effects of the volatility smile on exchange settlement practices: The Hong Kong case

The well-documented volatility smile phenomenon in the US options market has affected the option settlement practices of other markets. To settle Hang Seng Index (HSI) options, the Hong Kong Stock Exchange artificially builds in a piecewise linear “smile” or “sneer” volatility function, which is determined daily by market makers rather than directly by market forces. In this study, we investigate the time-varying settlement function and find the following economic determinants of the volatility function: lag parameters, current-day HSI returns, the distribution of HSI returns, transaction costs as proxied by the bid-ask spread, and the “Monday effect”. For evaluation purposes, we use as a benchmark the estimated piecewise linear volatility function as directly driven by market forces. The comparison analyses show that base volatilities set by market makers run somewhat high, while downside slopes are not steep enough. This results in the overpricing of the lion’s share of traded options. An economic determinants analysis of market-force-driven parameters reveals that market makers can better align artificial volatility parameters both by reducing reliance on the function parameters of prior days and by more precisely accounting for current-day HSI returns, option time-to-maturity, bid-ask spreads and buying pressure.     

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.     

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