What Is the Weekend Effect?
The weekend effect is a phenomenon in financial markets in which stock returns on Mondays are often significantly lower than those of the immediately preceding Friday.
(The weekend effect is sometimes known as the Monday effect, although that theory states that returns on thestock marketon Mondays will follow the prevailing trend from the previous Friday. If the market was up on Friday, it should continue through the weekend and, come Monday, resume its rise, and vice versa. )
Here's how the weekend effect works.
Key Takeaways
- The weekend effect is a phenomenon in financial markets in which stock returns on Mondays are often significantly lower than those of the immediately preceding Friday.
- Although the cause of the weekend effect is debated, the trading behavior of individual investors appears to be at least one factor contributing to this pattern.
- Some theories that attempt to explain the weekend effect point tothe tendency ofcompanies to release bad news on a Friday after the markets close, which thendepresses stock prices on Monday.
Understanding the Weekend Effect
One explanation for the weekend effect is the tendency of humans to act irrationally; the trading behavior of individual investors appears to be at least one factor contributing to this pattern. Faced with uncertainty, humans often make decisions that do not reflect their best judgment. At times, the capital markets reflect the irrationality of their participants, especially when considering the high volatility of stock prices and the markets; the decisions of investors may be impacted by external factors (and sometimes unconsciously). In addition, investors are more active sellers of stock on Mondays, especially following bad news in the market.
In 1973, Frank Cross first reported the anomaly of negative Monday returns in an article called “The Behavior of Stock Prices on Fridays and Mondays,”which was published in the Financial Analysts Journal. In the article, he shows that the average return on Fridays exceeded the average return on Mondays, and there is a difference in the patterns of price changes between those days. Stock prices fall on Mondays, following a rise on the previous trading day (usually Friday). This timing translates to a recurrent low or negative average return from Friday to Monday in the stock market.
Some theories that attempt to explain the weekend effect point tothe tendency ofcompanies to release bad news on a Friday after the markets close, which thendepresses stock prices on Monday. Others state that the weekend effect might be linked to short selling, which would affect stocks with high short interest positions. Alternatively, the effect could simply be a result of traders' fading optimism between Friday and Monday.
The weekend effect has been a regular feature of stock trading patterns for many years. According to a study by the Federal Reserve, prior to 1987, there was a statistically significant negative return over the weekends. However, the study did mention that this negative return had disappeared in the period between 1987 and 1998. Since 1998, volatility over the weekends has increased again,and the cause of the phenomenon of the weekend effect remains a much-debated topic.
Special Considerations
The reverse weekend effect
Opposing research on the "reverseweekend effect" hasbeen conducted by a number of analysts, who show that Monday returns are actually higher than returns on other days. Some research shows the existence of multiple weekend effects, depending on firm size, in which small companies have smaller returns on Mondays andlarge companies have higher returns on Mondays. The reverse weekend effect has also been postulated tooccur only in stock markets in the U.S.
FAQs
The weekend effect is a phenomenon in financial markets in which stock returns on Mondays are often significantly lower than those of the immediately preceding Friday.
What causes the weekend effect? ›
Lower levels of hospital staffing or staffing by relatively less experienced staff on weekends may result in inadequate assessment of patients or monitoring for complications.
Is the weekend effect real? ›
The “weekend effect” refers to the increased risk of complications or death for patients admitted to hospitals over the weekend. According to the Patient Safety Network, studies have shown that patients admitted to the hospital late on Friday to Sunday are more likely to have complications.
What is the weekend effect in healthcare? ›
In healthcare, the weekend effect is the finding of a difference in mortality rate for patients admitted to hospital for treatment at the weekend compared to those admitted on a weekday.
Does the weekend effect still exist? ›
In a paper entitled “Weekends Can Be Rough: Revisiting the Weekend Effect in Stock Prices,” economist Peter Fortune of the Federal Reserve Bank of Boston found that the weekend effect did, in fact, exist before 1987, but in the years since, negative weekend returns of any statistical significance have disappeared.
Why do I feel terrible on weekends? ›
Indulging in irregular or unhealthy eating habits during weekends can contribute significantly to feeling lethargic. Whether it's consuming excessive caffeine, alcohol, or junk food, these dietary choices can impact your energy levels and leave you feeling sluggish. Solution: Focus on balanced meals and hydration.
What is the weekend effect psychology? ›
Contemporary psychological research supports the existence of. weekly cyclicity in mood (Cranford et al., 2006). Current findings. specifically suggest two main patterns: The weekend effect, whereby. mood is more positive and less negative on weekends than the rest.
What is the weekend effect anomaly? ›
Abstract. The weekend effect refers to relatively large returns on Fridays compared to those on Mondays. Whereas the Friday returns exceed 0.20%, the Monday returns are close to zero or negative resulting in a weekend effect for an equally weighted index of 0.34 percent.
What is the Monday effect? ›
The monday effect, an oft-quoted 1970s stock market theory, suggests that Monday's market open will mirror the previous Friday's close.
What are the worst months for the stock market? ›
NYSE Composite best and worst months over the last 10 years (2014-2023)
- Best Months: April, June, July, October, November, and December.
- Worst Months: January, February, March, August, and September are weaker periods.
Benefits of a 3-day Weekend
Whether you're taking up a new hobby or dropping out of college to start a business, you'll have more time to do so when you work less. You'll have time to recharge. Working fewer hours gives you the time to rest and relax, which is essential for a healthy lifestyle.
Why weekends should be longer? ›
A three-day weekend gives you plenty of time to switch off from work, turn off the computer, and spend time rejuvenating your body and soul. Stress and overwork are inextricably linked, and stress can cause heart disease and even death.
What is the psychological benefit of a three day weekend? ›
They found that 87% of workers believe that three-day weekends are actually better for stress relief than longer vacations. It is believed that with a three-day weekend, workers find they can relax more without worrying as much about what is awaiting them back at the office.
What is the day of the week effect? ›
The day of the week effect is a phenomenon that constitutes a form of anomaly of the efficient capital markets theory. According to this phenomenon, the average daily return of the market is not the same for all days of the week, as we would expect on the basis of the efficient market theory.
Does the market go up or down on Monday? ›
It usually results in a recurrent low or negative average return from Friday to Monday in the stock market. Some theories say the Monday effect has a lot to do with the tendency of companies to release bad news on a Friday, after markets close, which then depresses stock prices on the following Monday.
What is the holiday effect? ›
In the world of investing, the “holiday effect,” as it is often referred to, is a phenomenon where stock prices see an increase right before a major holiday. There are many theories on why this may occur.
Why does it feel like the weekend goes by so fast? ›
It's not just an illusion; weekends really do seem to be shorter than our work periods. This is due to a phenomenon known as time compression. It's a psychological effect that occurs when we become used to a certain routine, causing time to appear to pass more quickly.
What is the weekend effect pollution? ›
The term weekend effect with the intention of describing the weekly behavior of air pollutants emerged and has always been almost exclusively used to describe the behavior of ozone during the weekend (Cleveland et al., 1974; Lebron, 1975; Tonse et al., 2008; Sicard et al., 2020).
