A brief history and recent developments in day‐of‐the‐week effect literature

Abstract

PurposeThe purpose of this paper is to provide a brief review of pre‐2003 work on the weekend effect and then discuss how recent selected work has extended our knowledge of the subject.Design/methodology/approachResults of recently published studies are organized and summarized by research question and outcomes.FindingsWhile early literature found a fairly consistent weekend effect, with positive returns on Fridays and negative returns on Mondays, more recent research shows the effect moving to other days, reversing or vanishing.Research limitations/implicationsWhile it is difficult to compare studies made across different time periods, the direction of present research gives insight into how markets are adjusting to the weekend effect anomaly.Practical implicationsInvestors may find it very hard to adequately identify a trading strategy based on current research.Originality/valueThis work conveniently synthesizes and presents current research findings from a variety of published sources.

Public Holiday and Weekend Anomalies in the Main Latin American Stock Markets

“…These studies are divided between those that manage to detect some kind of predictability and those, on the contrary, that reaffirm that market returns follow a random walk, that is, that it is virtually impossible to anticipate them based on stock quotations of immediately preceding periods (Famá & Bruni, 1998;Philpot & Peterson, 2011).…”

“…While many studies on returns in open markets have identified various anomalies of this kind, particularly in older series, studies that use more recent sample periods have generally indicated a lower impact or gradual disappearance of most of these effects (Philpot & Peterson, 2011).…”

“…Analogously, returns tend to be below average on Mondays and when trading is resumed after public holidays. A considerable number of these authors attribute these anomalies to the moods of traders, who are supposedly in higher than average spirits just before breaks or public holidays and worse than average on their return to work and the trading routine (Philpot & Peterson, 2011).…”

“…For this purpose the research used an alternative control that, as far as could be ascertained, had not been used in similar studies: variables that measure the intervals in terms of days between consecutive trading days, independently of the day of the week, and which we hereafter refer to as ''interval variables.'' According to Philpot and Peterson (2011), studies on return anomalies show that those related to specific days of the week have gradually been disappearing, more especially since 2003. According to these authors, the most plausible explanation is that knowledge of them has become so widespread that they have been incorporated into the most important traders' trading patterns.…”

Impact of market anomalies on stock exchange: a comparative study of KSE and PSX

“…Olowe [50] suggested the nonexistence of monthof-the-year effect in Nigerian stock market by utilizing EGARCH-in-mean model. Philpot and Peterson [51] concluded a literature review to conclude that research works pre-2003 years observed positive Friday and negative Monday returns, but research works after 2003 years observed that now this effect is reversing, vanishing or transferring to other week days. Nippani and Greenhut [47] followed Philpot and Peterson [51] and concluded that Canadian markets provided evidence for the existence of positive Friday and negative Monday returns, but after 1988, this effect reversed.…”