Investor Psychology and the Day-of-the-Week Effect

Rystrom, David S.; Benson, Earl D.

doi:10.2469/faj.v45.n5.75

Cited by 63 publications

(35 citation statements)

References 15 publications

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“…Rystrom and Benson (1989) and Jacobs and Levy (1988) suggested using emotion and mood, in particular the blue Monday hypothesis. They argued that the majority of investors feel more pessimistic on Monday than on other days of the week.…”

Section: Literature Reviewmentioning

confidence: 99%

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Does Mood Explain the Monday Effect?

Bakar

Siganos

Vagenas‐Nanos

2014

Journal of Forecasting

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A number of studies have explored the sources of the Monday effect, according to which returns are on average negative on Mondays. We contribute to the literature by exploring whether a direct measure of mood explains the Monday effect. In line with psychological literature, a greater proportion of investors is more pessimistic in the early days of the week, and become more optimistic as the week progresses. We use novel daily mood data from Facebook across twenty international markets to explore the impact of mood on the Monday anomaly. We find that the Monday effect disappears after controlling for mood. In line with our hypothesis that mood drives the Monday effect, we find that the Monday effect is more prominent within small capitalisation indices and within collectivist and high uncertainty avoidance countries. Investors could consider mood levels to forecast Mondays with more (less) pronounced negative returns.

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Section: Literature Reviewmentioning

confidence: 99%

“…By Friday, most people are looking forward to two leisure days with a positive attitude". However, Rystrom and Benson (1989) did not empirically test the hypothesis. Gondhalekar and Mehdian (2003) is the only study that used data to explore a potential link between mood and the Monday effect.…”

Section: Introductionmentioning

confidence: 99%

Does Mood Explain the Monday Effect?

Bakar

Siganos

Vagenas‐Nanos

2014

Journal of Forecasting

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“…Connolly (1999) also allowed for heteroscedasticity but still detected a Monday effect from the mid-1970s. Rystrom and Benson (1989) explained the presence of the dayof-the-week effect on the basis of the psychology of investors who believe that Monday is a "difficult" day of the week and have a more positive perception of Friday. Ariel (1990) argued against a connection between the weekend and the Monday effect.…”

Section: Introductionmentioning

confidence: 99%

The Weekend Effect: A Trading Robot and Fractional Integration Analysis

et al. 2014

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This paper provides some new empirical evidence on the weekend effect, one of the most recognized anomalies in financial markets. Two different methods are used: (i) a trading robot approach to examine whether or not there is such an anomaly giving rise to exploitable profit opportunities by replicating the actions of traders; (ii) a fractional integration technique for the estimation of the (fractional) integration parameter d. The results suggest that trading strategies aimed at exploiting the weekend effect can generate extra profits but only in a minority of cases in the gold and stock markets, whist they appear to be profitable in most cases in the FOREX. Further, the lowest orders of integration are generally found on Mondays, which can be seen as additional evidence for a weekend effect. Keywords IntroductionDetecting calendar effects (anomalies) in financial markets is of interest both to traders aiming to exploit them to gain extra profits and to researchers analysing whether there is evidence of market failure and of the inadequacy of the Efficient Market Hypothesis (EMH). Several papers have tested for their presence using a variety of empirical methods.One of the most frequently studied anomalies is the weekend effect (Monday effect, day of the week effect) first discussed by French (1980), namely the tendency of financial assets to generate negative returns on Mondays. Different theories have been developed to account for its presence. In behavioural finance models it is attributed to the negative expectations of investors considering Monday the worst day of the week. Another possible explanation is that over the weekend market participants have more time to analyse price movements and as a result on Mondays a larger number of trades takes place.Alternatively, it might be due to deferred payments during the weekend, which create an extra incentive for the purchase of securities on Fridays leading to higher prices on that day.Overall, the empirical evidence is still mixed. The present study provides some new results based on two different methods: (i) a trading robot approach to examine whether or not there is such an anomaly giving rise to exploitable profit opportunities by replicating the actions of traders; (ii) a fractional integration technique for the estimation of the (fractional) integration parameter d.The remainder of the paper is structured as follows: Section 2 briefly reviews the literature on the weekend effect. Section 3 outlines the empirical methodology. Section 4 presents the empirical results. Section 5 offers some concluding remarks. (1998, 1999) shows that it has a tendency to disappear and is a phenomenon with two components: the first is the "weekend drift effect", i.e. stock prices tend to decline over weekends but rise during the trading week; the second is the "weekend volatility effect", i.e. the volatility of returns during weekends is less per day than that over contiguous trading days.As for the role of short-selling, Kazemi, Zhai, He and Cai (2013) and Chen ...

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“…The relation between mood and prudence can also explain the results of Pettengill (1993), who found that investors tend to take higher financial risks before the weekend and lower financial risks after the weekend. Jacobs and Levy (1988) and Rystrom and Benson (1989) are the first to propose the behavioral hypothesis as a possible explanation for the day-of-the-week effect; neither, however, carry out statistical tests of the hypothesis. Gondhalekar and Mehdian (2003) find some supporting evidence for the behavioral hypothesis by showing that the negative returns on Mondays are intensified during periods of investor pessimism.…”

mentioning

confidence: 99%

Day-of-the-week returns and mood: an exterior template approach

Zilca¹

2017

Financ Innov

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Rule-and template-based pattern-recognition methods are alternative ways to identify various patterns in stock prices alongside more traditional econometric tools. In this study, we generate an exterior template of mood scores from two perplexingly similar samples of mood scores 50 years apart. The mood scores template enables us to deploy a direct test of the behavioral explanation for the day-of-the-week effect. Our evidence shows that the day-of-the-week mood template is a potentially valid explanation of the day-of-the-week effect. Subperiod analysis suggests that the magnitude of the day-ofthe-week effect has declined over time. That decline, however, is not uniform across size deciles and is more pronounced in larger capitalization deciles. There is no decline though in the ability of mood to explain the day-of-the-week effect.

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Investor Psychology and the Day-of-the-Week Effect

Cited by 63 publications

References 15 publications

Does Mood Explain the Monday Effect?

Does Mood Explain the Monday Effect?

The Weekend Effect: A Trading Robot and Fractional Integration Analysis

Day-of-the-week returns and mood: an exterior template approach

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