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Weekends can be rough: revisiting the weekend effect in stock prices

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  • Peter Fortune
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    Abstract

    The performance of stock prices during breaks in trading has received considerable attention in recent years. While some studies focus on performance surrounding periods of unscheduled trading breaks (trading halts in individual stocks, circuit breakers for exchanges), other studies look at performance around periods of scheduled trading breaks (holidays, weekends). This paper fits into the second group. We revisit the "weekend effect" in common stock returns. Our focus is on two characteristics of differential returns over intraweek trading days and over weekends: the mean return, or "drift", and the standard deviation of returns, or "volatility." ; We find that in the last 18 years the volatility over weekends has been stable, at about 10-20 percent greater for the three days from Friday's close to Monday's close than for a single intraweek trading day. However, while there was a large and statistically significant negative return over weekends prior to 1987, the post-1987 results indicate no weekend drift. In short, the negative weekend drift appears to have disappeared although weekends continue to have low volatility.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 98-6.

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    Date of creation: 1998
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    Handle: RePEc:fip:fedbwp:98-6

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    Keywords: Stock - Prices ; Stocks ; Stock market;

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    1. Johnson, Gordon & Schneeweis, Thomas, 1994. "Jump-Diffusion Processes in the Foreign Exchange Markets and the Release of Macroeconomic News," Computational Economics, Society for Computational Economics, vol. 7(4), pages 309-29.
    2. Kim, Myung-Jig & Oh, Young-Ho & Brooks, Robert, 1994. "Are Jumps in Stock Returns Diversifiable? Evidence and Implications for Option Pricing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(04), pages 609-631, December.
    3. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
    4. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
    5. Abraham, Abraham & Ikenberry, David L., 1994. "The Individual Investor and the Weekend Effect," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(02), pages 263-277, June.
    6. Harris, Lawrence, 1986. "A transaction data study of weekly and intradaily patterns in stock returns," Journal of Financial Economics, Elsevier, vol. 16(1), pages 99-117, May.
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    Cited by:
    1. Kunkel, Robert A. & Compton, William S. & Beyer, Scott, 2003. "The turn-of-the-month effect still lives: the international evidence," International Review of Financial Analysis, Elsevier, vol. 12(2), pages 207-221.
    2. Cho, Young-Hyun & Linton, Oliver & Whang, Yoon-Jae, 2007. "Are there Monday effects in stock returns: A stochastic dominance approach," Journal of Empirical Finance, Elsevier, vol. 14(5), pages 736-755, December.

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