What is the ‘Monday effect’
Monday effect theory, which States that profits on the stock market on Mondays will follow the prevailing trends in the previous Friday. Therefore, if the market was on Friday, it should last the weekend and on Monday will resume growth. Monday effect is also known as the “weekend effect”.
The effect of destruction “Monday”
Some studies have shown that a similar correlation, but no single theory could accurately explain the existence of the Monday effect. Justification or reason for the existence of the Monday effect is not quite clear. However, when considered from the point of view of the weekly auction, every Monday, capital markets experience opening performance, which reflects the close on Friday.
For examaple, I think the Dow Jones closed on Friday at $ 20,000, and he has been steadily climbing during the last hour of trading. According to the Monday effect, after the Dow Jones will re-open next Monday morning, the upside performance will continue during the first hours of trading. From 20 000, the Dow Jones could rise in the first hours of trading.
The story of the Monday effect
Frank Cross was first reported anomaly is the Monday effect through the 1973 article entitled “the behavior of stock prices on Fridays and Mondays”, published in the financial analysts journal. In the article he showed that the average return on Friday was higher than the average return on Mondays, and that there is a difference in the nature of price changes throughout the day. The results of the traditional Monday effect anomaly is consistent with a fall on Monday, after rising in the previous trading day, usually Friday. This usually leads to repeated low or negative average return from Friday to Monday in the stock market.
Some theories say that the Monday effect has a lot to do with the tendency of companies to release bad news on Friday, after markets closed, that then reduces the stock prices on Monday. Others believe that the Monday effect may be related to short sales, which would affect stocks with high short positions. In addition, the effect may be simply a result of traders fading optimism between Friday and Monday.
The effect was the anomaly-based trading for many years. According to a study by the Federal reserve until 1987 were found statistically significant negative returns on the weekends. However, the study mention that this negative return of the disappeared in the period after 1987 until 1998. Since 1998, the volatility of output has increased again, and the phenomenon Monday effect remains very discussed topic