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? ›
There are three potential mechanisms for 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. This could worsen outcomes for a broad range of patients.
What is the weekend effect in the hospital? ›
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.
What is the weekend effect anomaly? ›
The weekend effect is a seasonal anomaly characterized by higher returns on Fridays while they are significantly lower returns on Mondays. However, it can be thought as a seasonal anomaly that has a significant and systematic different return in one or more days of the week with respect to the other days.
What is the weekend effect in surgery? ›
Weekend effect is a phenomenon that describes worse patient outcomes for patients treated on the weekend compared with the weekday. Weekend effect has been described in surgical populations and is associated with worse outcomes2; however, it is unclear exactly why weekends lead to worse care.
Do stock prices change over the weekend? ›
share prices often rally ahead of long weekends and three-day holidays. ... share prices can experience their biggest fall of the week on a Monday as bad news over the weekend is digested and as traders' spirits fall on their return to work.
What happens to your body when you try sleeping in on weekends? ›
Changing up your sleep routine on the weekends could negatively affect circadian rhythms over time as well as other factors affecting your wellbeing and longevity. And, it may make it that much harder to wake up early again on Monday morning!
Why the weekend is good for mental health? ›
Long weekends provide ample opportunity for people to relax their sleep routines, sleep in later and catch up on lost sleep. In addition, having three mornings a week where you don't have to set your alarm and get up early is a great stress reducer.
Can you be discharged from hospital on a Sunday? ›
Plan for discharge seven days a week
However, few discharges actually take place over the weekend. This can cause problems, especially on Mondays when there may be a peak in admissions for inpatient elective care.
Why are hospitals so slow at night? ›
Most emergencies happen after work hours, at night and on the weekends. When there aren't enough emergency staff present during these busy times, it leads to overcrowded waiting rooms and extreme delays.
Monday effect is a theory that describes market trends in which the trading pattern of Friday will continue at the opening of trade on Monday. This theory is often used in the Stock market, it shows hoe returns and prevailing patterns of a previous Friday comes up on Monday rather than any other day.
How does Friday affect the stock market? ›
Stock turnover is generally lower and price movements less pronounced on the last trading day of week. Companies with bad news to report often take advantage of this slowdown by making their announcements on Fridays.
What is the day of the week effect? ›
Day of the week effect is a phenomenon according to which the average daily return of the market is not the same for all the days of the week, as it would be expected according to efficient market theory.
Why are most surgeries at night? ›
Most out-of-hours operations were performed by junior staff. The principal reasons suggested for operating at night are lack of day-time theatre space and the need to gain experience. There was considerable variation in the frequency with which different types of operation were performed among hospitals.
Why is the third day after surgery the worst? ›
Local anesthetics and painkillers given during and just after the surgery initially mask the pain, but these return. As the analgesic action fades, pain may intensify and therefore appear to peak at three days.
Why do they make you move after surgery? ›
Using your muscles as soon as you can after surgery can help you recover. It may help prevent problems that you can have from staying in the hospital too long. It can help keep muscles strong, improve your breathing, and help keep your bowel movements regular. It also can help keep your memory sharp.
Why do people look forward to the weekend? ›
They look forward to the weekends to help them become the best at who they are. We are all the sum of all our parts. Our family, our friends, our hobbies, our goals, and our dreams are all part of us and what make our lives so special and so great.
Why does it feel like the weekend goes by so fast? ›
The reason that weekends seem to fly by (and not in a good way)? A lot of us aren't mindful about what we're doing. "Weekends feel short because we don't think about how we're spending our time. We're so busy during the week [that] we get to the weekend and think we want to do 'nothing,'" Vanderkam says.
Why is the weather worse at weekends? ›
The atmosphere does not operate on the "workweek" cycle, even though most of us do. We tend to notice rain (or snow) more often on weekends because those are the times when we are more attuned to the weather, but that doesn't mean precipitation falls more frequently then.
How did the weekend become the weekend? ›
The present-day concept of the relatively longer 'week-end' first arose in the industrial north of Britain in the early 19th century and was originally a voluntary arrangement between factory owners and workers allowing Saturday afternoon off starting at 2 pm on the basis that staff would be available for work sober ...
