Are Stock Market Anomalies Merited? The 'Monday Effect' Debunked

There are numerous stock market anomalies that persist to this day — including the "weekend effect," the "January effect," the "Super Bowl effect," the "holiday effect," etc. — but researchers at Arizona State University are working to validate or debunk these.

Take the "Monday effect," also known as the weekend effect: a long-believed stock market superstition that returns tend to be negative on the first day of the week.

The Monday Effect

According to Financial Dictionary, the Monday effect is described as “the belief that securities market returns on Mondays are less than the other days of the week, and are often negative on average.” The entry continues, “This effect has been observed in both American and foreign exchanges. Studies have documented it since the 1920s, but no theory has adequately explained the reasons it exists.”

Arizona State University finance professor Geoffrey Smith has been conducting a study on the Monday Effect initially published in the Critical Finance Review. “Prior researchers have applied tests to see on average if returns on Monday were negative in a statistical sense,” said Smith.

“The Monday effect is likely due to the time period in which the original study was conducted,” Smith explained.

The idea of the Monday effect initially came from findings conducted in the 1960s through the 1980s. According to Smith's study, negative returns on Monday ceased to exist in 1974 and returned to zero on average.

“There is no reason for Monday to be negative, our insight was, maybe it was just the time period the researchers studied,” he said. This was in fact true, as the team from ASU studied returns from every Monday since data was first made available in 1926 up until 2014. They used the CRSP US Total Market Index to conduct the study.

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