Weekend Effect

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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.

BREAKING DOWN '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.

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