Weekend Effect

AAA

DEFINITION of 'Weekend Effect'

A phenomenon in financial markets in which stock returns on Mondays are often significantly lower than those of the immediately preceding Friday. Some theories that explain the effect attribute the tendency for companies to release bad news on Friday after the markets close to depressed 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.

INVESTOPEDIA EXPLAINS 'Weekend Effect'

The weekend effect has been a regular feature of stock trading patterns for many years. For example, 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 from post-1987 to 1998. Since 1998, volatility over the weekends has increased again, and the phenomenon of the weekend effect remains a much debated topic.

RELATED TERMS
  1. Market Timing

    1. The act of attempting to predict the future direction of the ...
  2. January Effect

    A general increase in stock prices during the month of January. ...
  3. October Effect

    The theory that stocks tend to decline during the month of October. ...
  4. Calendar Effect

    A collection of assorted theories that assert that certain days, ...
  5. Monday Effect

    A theory that states that returns on the stock market on Mondays ...
  6. Cape Cod Method

    A method used to calculate loss reserves that uses weights proportional ...
RELATED FAQS
  1. What does the underlying of a derivative refer to?

    A derivative security is a financial instrument in which the price of the derivative is dependent on its underlying asset. ... Read Full Answer >>
  2. What is the difference between the cost of capital and the discount rate?

    The cost of capital refers to the actual cost of financing business activity through either debt or equity capital. The discount ... Read Full Answer >>
  3. How can an investor profit from a decline in the real estate sector?

    Speculation enables investors to profit from a decline in the real estate sector. The most popular forms of speculation for ... Read Full Answer >>
  4. What does it mean to take delivery of a derivative contract?

    When trading derivative contracts for options, a buyer or holder may have to take delivery of the underlying asset if the ... Read Full Answer >>
  5. What does the notional principal of a derivative contract refer to?

    The notional principal amount of a derivative refers to the nominal, or predetermined, value used to calculate payments made ... Read Full Answer >>
  6. How can derivatives be used for speculation?

    Derivative securities could be bought or sold to speculate on the future price of the underlying assets. Derivative securities' ... Read Full Answer >>
Related Articles
  1. Active Trading

    What Is Market Efficiency?

    The efficient market hypothesis (EMH) suggests that stock prices fully reflect all available information in the market. Is this possible?
  2. Active Trading Fundamentals

    Capitalizing On Seasonal Effects

    We show you how to take advantage of periodic trends in the equity markets.
  3. Active Trading Fundamentals

    An Introduction To Behavioral Finance

    Curious about how emotions and biases affect the market? Find some useful insight here.
  4. Investing

    Making Sense Of Market Anomalies

    Stocks sometimes thwart the efficient market theory by showing some very unusual patterns.
  5. Trading Strategies

    When To Follow The Crowd And When To Lose It

    Our profits ultimately depend on the misfortune of other market players.
  6. Active Trading Fundamentals

    The Shiny Object Syndrome that Kills Trader Productivity

    People get distracted and, in their excitement, they end up trying to learn everything rather than focusing on the subject they had originally set out to learn.
  7. Investing Basics

    Understanding Open-End Funds

    An open-end fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy.
  8. Investing Basics

    What is a Nominal Value?

    The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life.
  9. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
  10. Economics

    What is Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center