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 also known as the Monday effect.

BREAKING DOWN 'Weekend Effect'

In a perfect world, human beings are perfectly rational and are capable of processing all information and making optimal choices with perfect information. However, the capital markets reflect the irrationality of its participants, given the high volatility of stock prices and the markets. External factors at play influence the decisions of investors, sometimes unconsciously. One behavioral theory that shows the irrationality of players in the market is the weekend effect.

In 1973, Frank Cross first reported the anomaly of negative Monday returns through an article titled “The Behavior of Stock Prices on Fridays and Mondays,” published in the Financial Analysts Journal. In the article, he shows that the average return on Fridays exceeded the average return on Mondays, and that there is a difference in the patterns of price changes between those days. The weekend effect is an anomaly that sees stock prices fall on Mondays following a rise on the previous trading day, usually Friday. The timing translates to a recurrent low or negative average return from Friday to Monday in the stock market.

Some theories that explain the effect point to the tendency of companies to release bad news on a Friday after the markets close, which then depresses 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.

Opposing research on the "reverse weekend effect" has been conducted by a number of analysts, who show that Monday returns are actually higher than the returns on other days. Some of the research done shows the existence of multiple weekend effects, depending on firm size, in which small companies have smaller returns on Mondays and large companies have higher returns on Mondays. The reverse weekend effect has also been postulated to occur only in United States stock markets.

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 after 1987 until 1998. Since 1998, volatility over the weekends has increased again, and the phenomenon of the weekend effect remains a much debated topic.

  1. Hamptons Effect

    The Hamptons Effect refers to a dip in trading before Labor Day ...
  2. Small Firm Effect

    The small firm effect is a theory that holds that smaller firms, ...
  3. The Wealth Effect

    The wealth effect in behavioral finance suggests that investors ...
  4. October Effect

    The October effect is a theory that stocks tend to decline during ...
  5. House Money Effect

    House Money Effect is the tendency for investors to take more ...
  6. Total Return

    Total return is a performance measure that reflects the actual ...
Related Articles
  1. Investing

    Want a Weekend Home? Ask These 4 Questions First

    If you're considering buying a weekend home, ask these questions first.
  2. Investing

    AMC Shares Up On Acquisition and Ticket Sales

    AMC shares are continuing their recent move higher following the completed acquisition of Carmine Cinemas and strong ticket sales.
  3. Investing

    "Split" Again Takes Weekend Box Office Crown

    For the third week in a row Split, the latest thriller from director M. Night Shyamalan, was the most popular movie in the U.S. A tense story about a kidnapper with dissociative identity disorder, ...
  4. Investing

    Does Higher Risk Really Lead To Higher Returns?

    Learn about what is being dubbed the low-volatility anomaly, why it exists and what we can learn from it.
  5. Financial Advisor

    A Quick Guide On Behavioral Funds

    Investopedia explores the working of behavioral funds, their benefits and risks, and an analysis of their past returns.
  6. Insights

    Black Friday Sales Figures: Fact and Fiction

    Retailers are eager to cash in on the all-important holiday shopping season. But what exactly should investors make of the ensuing sales figures?
  7. Investing

    "Beauty and the Beast" Reigns Over the Box Office

    This past weekend's U.S. box office saw a dramatic increase on a year-over-year basis. The 12 most-popular film releases of the period collectively raked in over $192 million, a figure that ...
  8. Investing

    Decline in WPX Offers Investors a Chance to Buy

    WPX could hold on to the gains it saw on its November 30 breakout if oil stays at $50.
  9. Investing

    "Beauty" Slays a Beast at the Box Office

    It was hardly a contest: New movie release Beauty and the Beast trounced last week's most popular ticket, Kong: Skull Island, to become the No. 1 film at the box office over the weekend. The ...
  1. Do real estate agents work on weekends?

    Learn how working weekends and evenings is one way real estate agents increase their chances of making a sale to a potential ... Read Answer >>
  2. What effect does the income effect have on my business?

    Learn if you should open or modify your existing small business based on the income effect. Learn if it would positively ... Read Answer >>
  3. How do you calculate the income effect distinctly from the price effect?

    Learn more about how the income and substitution effects operate in economics and how to separate either of these while calculating ... Read Answer >>
  4. How are effective tax rates calculated from income statements?

    Learn how to read an income statement and how to find the information necessary to calculate a company's effective income ... Read Answer >>
Trading Center