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Seasonality in outliers of daily stock returns: A tail that wags the dog?


  • Galai, Dan
  • Kedar-Levy, Haim
  • Schreiber, Ben Z.


We document significant intra-year seasonality in outliers of S&P500 daily rates of return. Controlling for outliers in dummy regressions reveals that both the January and Monday effects turn from insignificant to highly significant. Mean daily return on January doubles and becomes significantly higher than all other months of the year, and Monday's mean return turns significantly positive and higher than other days of the week. The recently documented Halloween effect turns significant only after controlling for outliers as June, August, and September turn out to be months with remarkably low rates of returns. Being random, outliers cannot serve as instrumental variables for designing trading rules, yet, their impact on options pricing through the increase in volatility, may be applied for profitable options strategies.

Suggested Citation

  • Galai, Dan & Kedar-Levy, Haim & Schreiber, Ben Z., 2008. "Seasonality in outliers of daily stock returns: A tail that wags the dog?," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 784-792, December.
  • Handle: RePEc:eee:finana:v:17:y:2008:i:5:p:784-792

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    References listed on IDEAS

    1. Marshall Blume & Robert Stambaugh, "undated". "Biases in Computed Returns: An Application to the Size Effect (Revision of 2-83)," Rodney L. White Center for Financial Research Working Papers 11-83, Wharton School Rodney L. White Center for Financial Research.
    2. Reinganum, Marc R., 1983. "The anomalous stock market behavior of small firms in January : Empirical tests for tax-loss selling effects," Journal of Financial Economics, Elsevier, vol. 12(1), pages 89-104, June.
    3. Blume, Marshall E. & Stambaugh, Robert F., 1983. "Biases in computed returns : An application to the size effect," Journal of Financial Economics, Elsevier, vol. 12(3), pages 387-404, November.
    4. Schwert, G. William, 2003. "Anomalies and market efficiency," Handbook of the Economics of Finance,in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 15, pages 939-974 Elsevier.
    5. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    6. Gibbons, Michael R & Hess, Patrick, 1981. "Day of the Week Effects and Asset Returns," The Journal of Business, University of Chicago Press, vol. 54(4), pages 579-596, October.
    7. French, Kenneth R., 1980. "Stock returns and the weekend effect," Journal of Financial Economics, Elsevier, vol. 8(1), pages 55-69, March.
    8. Connolly, Robert A., 1989. "An Examination of the Robustness of the Weekend Effect," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(02), pages 133-169, June.
    9. Keim, Donald B., 1983. "Size-related anomalies and stock return seasonality : Further empirical evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 13-32, June.
    10. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    Cited by:

    1. Olson, Dennis & Mossman, Charles & Chou, Nan-Ting, 2015. "The evolution of the weekend effect in US markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 56-63.
    2. Haggard, K. Stephen & Witte, H. Douglas, 2010. "The Halloween effect: Trick or treat?," International Review of Financial Analysis, Elsevier, vol. 19(5), pages 379-387, December.
    3. Gonzalez-Perez, Maria T. & Guerrero, David E., 2013. "Day-of-the-week effect on the VIX. A parsimonious representation," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 243-260.
    4. Doyle, John R. & Chen, Catherine Huirong, 2009. "The wandering weekday effect in major stock markets," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1388-1399, August.
    5. Keef, Stephen P. & Khaled, Mohammed & Zhu, Hui, 2009. "The dynamics of the Monday effect in international stock indices," International Review of Financial Analysis, Elsevier, vol. 18(3), pages 125-133, June.
    6. Dragos Stefan Oprea, 2014. "The Halloween Effect Evidence from Romania," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(7), pages 463-471, July.
    7. James Philpot & Craig A. Peterson, 2011. "A brief history and recent developments in day-of-the-week effect literature," Managerial Finance, Emerald Group Publishing, vol. 37(9), pages 808-816, August.
    8. repec:eee:ecofin:v:43:y:2018:i:c:p:169-205 is not listed on IDEAS
    9. Vicente Medina Martínez & Ángel Pardo Tornero, 2012. "Stylized facts of CO2 returns," Working Papers. Serie AD 2012-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    10. Boubaker, Sabri & Essaddam, Naceur & Nguyen, Duc Khuong & Saadi, Samir, 2017. "On the robustness of week-day effect to error distributional assumption: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 114-130.


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