The 'Monday Effect'?

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joer1212
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The 'Monday Effect'?

Post by joer1212 » Mon Jun 08, 2015 2:08 pm

I have noticed that stocks tend to rise on Fridays and dip on Mondays. I don't know what this can be attributed to. Perhaps people get exuberant as the weekend draws near, and dejected when it ends?

At any rate, I have been tracking the market for over 2 years now, and I have repeatedly noticed this pattern.
The thing is, contributions go into my 401(k) on Fridays, on a biweekly basis. I can't tell you how many times I watched helplessly as my money went in during a market spike on Friday, subsequently dropping on the following Monday, and thereby causing me to miss a buying opportunity.

I know it may seem that I am trying to 'time the market', but, from what I've observed, the Monday effect happens more often than not, so I think it warrants a discussion.

Also, I know I'm supposed to have a long-term view of the market, and not worry about day-to-day swings, but I wonder-- if it were possible to defer my 401(k) contributions to Mondays, wouldn't this result in higher returns over many years (assuming the phenomenon persists?).
Has anyone else here noticed the Monday effect? Is there a way to take advantage of it in your deferred compensation plan?*

* I know I could simply call my 401(k) administrator to inquire about this, but I wanted to run this by you guys & set me straight before I do anything.
Last edited by joer1212 on Mon Jun 08, 2015 2:21 pm, edited 1 time in total.

dkturner
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Re: The 'Monday Effect'?

Post by dkturner » Mon Jun 08, 2015 2:18 pm

joer1212 wrote:I have noticed that stocks tend to rise on Fridays and dip on Mondays. I don't know what this can be attributed to. Perhaps people get exuberant as the weekend draws near, and dejected when it ends?

At any rate, I have been tracking the market for over 2 years now, and I have repeatedly noticed this pattern.
The thing is, contributions go into my 401(k) on Fridays, on a biweekly basis. I can't tell you how many times I watched helplessly as my money went in during a market spike on Friday, subsequently dropping on the following Monday, and thereby missing a buying opportunity.

I know it may seem that I am trying to 'time the market', but, from what I've observed, the Monday effect happens more often than not, so I think it warrants a discussion.

Also, I know I'm supposed to have a long-term view of the market, and not worry about day-to-day swings, but I wonder-- if it were possible to defer my 401(k) contributions to Mondays, wouldn't this result in higher returns over many years (assuming the phenomenon persists?).
Has anyone else here noticed the Monday effect? Is there a way to take advantage of it in your deferred compensation plan?*

* I know I could simply call my 401(k) administrator to inquire about this, but I wanted to run this by you guys & set me straight before I do anything.


You might also look into variations in stock prices in relation to the phases of the moon.

leonard
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Re: The 'Monday Effect'?

Post by leonard » Mon Jun 08, 2015 2:22 pm

joer1212 wrote:I have noticed that stocks tend to rise on Fridays and dip on Mondays. I don't know what this can be attributed to. Perhaps people get exuberant as the weekend draws near, and dejected when it ends?

At any rate, I have been tracking the market for over 2 years now, and I have repeatedly noticed this pattern.
The thing is, contributions go into my 401(k) on Fridays, on a biweekly basis. I can't tell you how many times I watched helplessly as my money went in during a market spike on Friday, subsequently dropping on the following Monday, and thereby missing a buying opportunity.

I know it may seem that I am trying to 'time the market', but, from what I've observed, the Monday effect happens more often than not, so I think it warrants a discussion.

Also, I know I'm supposed to have a long-term view of the market, and not worry about day-to-day swings, but I wonder-- if it were possible to defer my 401(k) contributions to Mondays, wouldn't this result in higher returns over many years (assuming the phenomenon persists?).
Has anyone else here noticed the Monday effect? Is there a way to take advantage of it in your deferred compensation plan?*

* I know I could simply call my 401(k) administrator to inquire about this, but I wanted to run this by you guys & set me straight before I do anything.


If you are convinced of this effect - have your contributions go in to the stable value or money market fund which are cash equivalents.

Then, simply exchange in to the fund of your choice effective Monday.

btw - individual investors that try to time the market are generally not successfully.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

goingup
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Re: The 'Monday Effect'?

Post by goingup » Mon Jun 08, 2015 2:27 pm

Tell you what, I'll take all the Fridays 2009,10,11. You can have all the Mondays in 2012,13,14. We'll each have made identical contributions. Let's see who has the bigger balance. :)

My point is...it simply doesn't matter. Time in the market, not timing the market. If you bring this up to your 401K administrator, they will think you're loony.

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bertie wooster
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Re: The 'Monday Effect'?

Post by bertie wooster » Mon Jun 08, 2015 2:46 pm

You are wasting your time. While you think you've noticed a pattern folks with far more money with you would have noticed this before you did and taken advantage to the point where the pattern wouldn't exist.

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Re: The 'Monday Effect'?

Post by 691175002 » Mon Jun 08, 2015 2:55 pm

joer1212 wrote:I have noticed that stocks tend to rise on Fridays and dip on Mondays. I don't know what this can be attributed to. Perhaps people get exuberant as the weekend draws near, and dejected when it ends?

At any rate, I have been tracking the market for over 2 years now, and I have repeatedly noticed this pattern.


You have done the math incorrectly. There is literally decades of research on market seasonality. Day of the week and month are among the most frequently tested relationships.

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DaftInvestor
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Re: The 'Monday Effect'?

Post by DaftInvestor » Mon Jun 08, 2015 3:00 pm

Hmm...
Everyone is trying to find a pattern but interestingly people are finding different patterns. If you google "Monday Effect" you will find a lot of resources define this differently than you are. If such a thing existed - it would exploited and rendered non-existent as someone already stated but just for fun take a look at the various trends and definitions that are out there. A couple of example definitions:

Investopedia:
DEFINITION of 'Monday Effect'
A theory that states that returns on the stock market on Mondays will follow the prevailing trend from the previous Friday. Therefore, if the market was up on Friday, it should continue through the weekend and, come Monday, resume its rise.

From the Financial-Dictionary:
Monday Effect: The tendency of stocks to produce lower-than-average returns on Mondays compared to other days of the week. One study indicated most of the poor performance during Mondays occurs during the first hour of trading.


So by the first definition, you are better off getting your money in on Friday. By the second definition - it won't matter for Mutual Funds since they are bought at the end of the day and the "poor performance" is typically at the beginning of the trading day.

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JoMoney
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Re: The 'Monday Effect'?

Post by JoMoney » Mon Jun 08, 2015 3:33 pm

http://calendar-effects.behaviouralfina ... nd-effect/
Links to several academic papers on the 'Monday Effect'... not all of their links work, but they have titles and authors so the paper could be found elsewhere.
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Re: The 'Monday Effect'?

Post by Purelife304 » Mon Jun 08, 2015 4:12 pm

Just pulled a few years worth of data on the S&P 500.

Looks like Monday's and Friday's both experience more days in the green than days in the red. The average one day gain on Monday's were 0.64% and Friday's experienced a 0.60% increase (an for transparency the days Monday's lost they averaged a loss of -.67% and Friday's lost -.74%)

Not 'research' level statistics, but sometimes you don't need to go through that trouble. :sharebeer

Day Gain Loss
Monday 52% 48%
Friday 58% 42%

256 Monday's, 275 Friday's. 1/4/10 - 6/8/15

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Re: The 'Monday Effect'?

Post by nisiprius » Mon Jun 08, 2015 4:18 pm

Although I think Jeremy Siegel's Stocks for the Long Run is overoptimistic and has too much cheerleading stocks, it is nevertheless a first-rate book with a wealth of information. He devotes a chapter to calendar anomalies and several pages to "Day-of-the-Week effects." He comments that
Monday has been by far the worst day of the week of the market. Over the past 127 years the returns on Monday have been decisively negative--so negative that if Monday returns were instead like Tuesday through Friday, the historical real return on the stocks would exceed 13 percent per year, nearly double the historical average!
This suggests on the face of it that you could double your returns simply by selling all your stocks every Friday and buying the back every Tuesday... or something like that. But, wait--there's always a pesky detail:
But these daily patterns have changed dramatically in recent years. Since 1995, Monday has gone from the worst to the second best... and Friday has not only gone from the best to the worst day but has actually recorded negative average returns.
This phenomenon--of effects apparently disappearing just about the time the general public learns about them--seems to happen quite a lot.

I personally wouldn't touch this sort of strategy. It just can't be that simple, it's something for nothing, it's too good to be true.
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Re: The 'Monday Effect'?

Post by bayview » Mon Jun 08, 2015 4:35 pm

Purelife304 wrote:Just pulled a few years worth of data on the S&P 500.

Looks like Monday's and Friday's both experience more days in the green than days in the red. The average one day gain on Monday's were 0.64% and Friday's experienced a 0.60% increase (an for transparency the days Monday's lost they averaged a loss of -.67% and Friday's lost -.74%)

Not 'research' level statistics, but sometimes you don't need to go through that trouble. :sharebeer

Day Gain Loss
Monday 52% 48%
Friday 58% 42%

256 Monday's, 275 Friday's. 1/4/10 - 6/8/15

I sure see a lot of Fridays with higher prices. :oops:

I don't suppose there's enough volume from us biweekly paycheck slobs' 401(k)s and 403(b)s and TSPs and whatever else that demand increases and therefore prices increase? This isn't market timing to me; just market annoying.
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joer1212
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Re: The 'Monday Effect'?

Post by joer1212 » Mon Jun 08, 2015 11:50 pm

goingup wrote:If you bring this up to your 401K administrator, they will think you're loony.


I would not tell them the reason for switching my contribution day.

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Re: The 'Monday Effect'?

Post by joer1212 » Mon Jun 08, 2015 11:55 pm

JoMoney wrote:http://calendar-effects.behaviouralfinance.net/weekend-effect/
Links to several academic papers on the 'Monday Effect'... not all of their links work, but they have titles and authors so the paper could be found elsewhere.


Bingo!
I had no idea that this was a recognized phenomenon. I actually thought that I was the one who recently discovered it. Too bad someone beat me to the patent :mrgreen:
Last edited by joer1212 on Tue Jun 09, 2015 12:20 am, edited 2 times in total.

joer1212
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Re: The 'Monday Effect'?

Post by joer1212 » Tue Jun 09, 2015 12:03 am

nisiprius wrote:Although I think Jeremy Siegel's Stocks for the Long Run is overoptimistic and has too much cheerleading stocks, it is nevertheless a first-rate book with a wealth of information. He devotes a chapter to calendar anomalies and several pages to "Day-of-the-Week effects." He comments that
Monday has been by far the worst day of the week of the market. Over the past 127 years the returns on Monday have been decisively negative--so negative that if Monday returns were instead like Tuesday through Friday, the historical real return on the stocks would exceed 13 percent per year, nearly double the historical average!
This suggests on the face of it that you could double your returns simply by selling all your stocks every Friday and buying the back every Tuesday... or something like that. But, wait--there's always a pesky detail:
But these daily patterns have changed dramatically in recent years. Since 1995, Monday has gone from the worst to the second best... and Friday has not only gone from the best to the worst day but has actually recorded negative average returns.
This phenomenon--of effects apparently disappearing just about the time the general public learns about them--seems to happen quite a lot.

I personally wouldn't touch this sort of strategy. It just can't be that simple, it's something for nothing, it's too good to be true.


Hmm. It's possible that 2 years of observing the Monday Effect is too small a sample for me to come to conclusions. Perhaps, if I analyze the past 5, 10 or 15 years, I may conclude that my observations were wrong, and that, in the long run, this anomaly only occurs randomly.

joer1212
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Re: The 'Monday Effect'?

Post by joer1212 » Tue Jun 09, 2015 12:13 am

bayview wrote:I don't suppose there's enough volume from us biweekly paycheck slobs' 401(k)s and 403(b)s and TSPs and whatever else that demand increases and therefore prices increase? This isn't market timing to me; just market annoying.


That's actually a good point. I didn't consider this. But, whether there are enough of us to affect the market is anyone's guess.

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Re: The 'Monday Effect'?

Post by LateStarter1975 » Tue Jun 09, 2015 8:40 am

nisiprius wrote:Although I think Jeremy Siegel's Stocks for the Long Run is overoptimistic and has too much cheerleading stocks, it is nevertheless a first-rate book with a wealth of information. He devotes a chapter to calendar anomalies and several pages to "Day-of-the-Week effects." He comments that
Monday has been by far the worst day of the week of the market. Over the past 127 years the returns on Monday have been decisively negative--so negative that if Monday returns were instead like Tuesday through Friday, the historical real return on the stocks would exceed 13 percent per year, nearly double the historical average!
This suggests on the face of it that you could double your returns simply by selling all your stocks every Friday and buying the back every Tuesday... or something like that. But, wait--there's always a pesky detail:
But these daily patterns have changed dramatically in recent years. Since 1995, Monday has gone from the worst to the second best... and Friday has not only gone from the best to the worst day but has actually recorded negative average returns.
This phenomenon--of effects apparently disappearing just about the time the general public learns about them--seems to happen quite a lot.

I personally wouldn't touch this sort of strategy. It just can't be that simple, it's something for nothing, it's too good to be true.


This
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just frank
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Re: The 'Monday Effect'?

Post by just frank » Tue Jun 09, 2015 10:24 am

Huh, I would have thought the up fridays were caused by 401k contributions happening on Fridays.

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Re: The 'Monday Effect'?

Post by BolderBoy » Tue Jun 09, 2015 1:23 pm

joer1212 wrote:I have noticed that stocks tend to rise on Fridays and dip on Mondays.

Really? Five years ago I asked one of my colleagues who was doing the coursework for his CFP, if there was any sort of effect such as you are describing and he said it was the reverse - dip on Fridays and rise on Mondays.

So I charted it for a year.

I'd have been closer to the right answer if I'd been gutting owls and reading their entrails. So will you.

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Re: The 'Monday Effect'?

Post by kaudrey » Tue Jun 09, 2015 1:59 pm

www.equityclock.com looked at 20 years of data:

Monday

Monday has shown results that indicate this is the day with the greatest probability of reaping a gain. Over the past 20 years, 54.38% of Monday’s have gained on the day, averaging a return of 0.05%.

Friday

And now that we’re at the end of the week we can begin to relax and witness 53.52% of days finishing up. But before you run out the door be sure to observe the average return. It’s even (0.00%), having not produced an average gain or loss on the day.

Doesn't seem to support the theory.

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Re: The 'Monday Effect'?

Post by joer1212 » Tue Jun 09, 2015 4:46 pm

kaudrey wrote:Over the past 20 years, 54.38% of Monday’s have gained on the day, averaging a return of 0.05%.


Maybe over a period of decades, the results would be different. I have observed the Monday Effect only for the past 2 years.

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Re: The 'Monday Effect'?

Post by bs010101 » Tue Jun 09, 2015 7:29 pm

BolderBoy wrote:I'd have been closer to the right answer if I'd been gutting owls and reading their entrails. So will you.


You mean I've been missing out of the owl entrail premium all these years? Is there an ETF for that?

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Re: The 'Monday Effect'?

Post by grabiner » Tue Jun 09, 2015 9:33 pm

kaudrey wrote:http://www.equityclock.com looked at 20 years of data:

Monday

Monday has shown results that indicate this is the day with the greatest probability of reaping a gain. Over the past 20 years, 54.38% of Monday’s have gained on the day, averaging a return of 0.05%.

Friday

And now that we’re at the end of the week we can begin to relax and witness 53.52% of days finishing up. But before you run out the door be sure to observe the average return. It’s even (0.00%), having not produced an average gain or loss on the day.

Doesn't seem to support the theory.


If the average annual return of the market is 8%, then you would expect 0.06% on Monday and 0.02% every other day of the week, since Mondays have three days of returns. (It is easier to see this effect with fixed income; a bond or bank account with a 3.65% yield will earn 0.01% every calendar day, and thus 0.03% from Friday to Monday.)
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Re: The 'Monday Effect'?

Post by HomerJ » Tue Jun 09, 2015 10:35 pm

joer1212 wrote:
kaudrey wrote:Over the past 20 years, 54.38% of Monday’s have gained on the day, averaging a return of 0.05%.


Maybe over a period of decades, the results would be different. I have observed the Monday Effect only for the past 2 years.


Are you investing over decades or just 2 years?

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Re: The 'Monday Effect'?

Post by U5512 » Wed Jun 10, 2015 3:28 am

I get pay on Friday and my 401K (Vanguard) gets its funding on Monday. 8-)
Last edited by U5512 on Wed Jun 10, 2015 12:15 pm, edited 1 time in total.
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Re: The 'Monday Effect'?

Post by Taylor Larimore » Wed Jun 10, 2015 6:18 am

Since 1989, Monday, Tuesday and Wednesday have been the most consistently bullish days of the week for the Dow. Thursday and Friday the most bearish. -- 2015 Stock Trader's Almanac

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Re: The 'Monday Effect'?

Post by pkcrafter » Wed Jun 10, 2015 9:28 am

I have noticed that stocks tend to rise on Fridays and dip on Mondays. I don't know what this can be attributed to.

Just ask Fats Domino. :happy

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Re: The 'Monday Effect'?

Post by WoofWoof » Wed Jun 10, 2015 9:43 am

HomerJ wrote:Are you investing over decades or just 2 years?

More importantly, are you investing over the two years that just happened or the two years coming up? That the last two years shows a bullish trend during a massive run up is hardly surprising but if you can determine the next two years, well, that would be worth something.

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Re: The 'Monday Effect'?

Post by Jim180 » Fri Jun 12, 2015 3:49 pm

joer1212 wrote:I have noticed that stocks tend to rise on Fridays and dip on Mondays.
I guess everyone knew that the first Friday after this post stocks would dip, not rise. We'll see what happens Monday.

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Re: The 'Monday Effect'?

Post by jhfenton » Fri Jun 12, 2015 6:36 pm

U5512 wrote:I get pay on Friday and my 401K (Vanguard) gets its funding on Monday. 8-)

I get paid every other Friday, but Fidelity always gets my 401(k) money on Thursday (the day before).

My wife gets paid the last Friday of every month, but they don't usually run the 401(k) contributions until the following Monday, which get invested with Schwab on Tuesday.

And many other employers are even slower about passing along the 401(k) contributions. I have no idea what the average is, but it's not as simple as Friday paydays means Friday 401(k) contributions.

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Re: The 'Monday Effect'?

Post by Martin » Fri Jun 12, 2015 6:43 pm

For grins I check the number of the S&P since the early fifties. Here are the numbers of the annualized returns if all days were for example Mondays.

Monday - (-14.5%)
Tuesday - 10.8%
Wednesday - 21%
Thursday - 10.9%
Friday -19.3%

This has to be more than coincidence to have such a large difference over sixty five years. Can someone take advantage of it? I know I can't but that doesn't mean it doesn't exist. By the way, I checked other funds and saw the same trend. I suspect as time goes on there will be a greater realization that the market is not as efficient as some would like and there is a greater behavioral influence than thought.

I hear the stocks a droppin in anticipation of a Monday!

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Post by Taylor Larimore » Fri Jun 12, 2015 8:45 pm

Bogleheads:

Percentage of times S&P 500 Index closed higher than previous day (June 1952 to May 2, 2014):

48.0% Monday
51.5% Tuesday
55.9% Wednesday
52.8% Thursday
56.6% Friday

Source: 2015 Stock Trader's Almanac

Market Timing does not work. Stay the course.

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Re: The 'Monday Effect'?

Post by grabiner » Fri Jun 12, 2015 9:32 pm

Martin wrote:For grins I check the number of the S&P since the early fifties. Here are the numbers of the annualized returns if all days were for example Mondays.

Monday - (-14.5%)
Tuesday - 10.8%
Wednesday - 21%
Thursday - 10.9%
Friday -19.3%


This is a statistic on the value of the index, not adjusted for dividends. Therefore, it probably means that more stocks go ex-dividend on Mondays than on any other day of the week. If a stock pays a dividend on a fixed day of the month (every month, quarterly, or annually), it will go ex-dividend 3/7 of the time on Monday; the stock price and its contribution to the S&P drop over the weekend but investors don't lose any money.

Taylor Larimore wrote:Percentage of times S&P 500 Index closed higher than previous day (June 1952 to May 2, 2014):

48.0% Monday
51.5% Tuesday
55.9% Wednesday
52.8% Thursday
56.6% Friday

Source: 2015 Stock Trader's Almanac


This covers approximately 3100 of each day (62 years * 250 trading days per year / 5 days per week). If you flip a fair coin 3100 times, the standard deviation of the fraction of heads is .009. Thus, even ignoring Monday, the Tuesday-Friday deviations are slightly more than would be expected by random chance, although they may also depend on the scheduling of dividend dates. (For example, ex-dividend Tuesdays may be more common than Wednesdays, Thursdays, or Fridays because of Monday holidays.)
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Re: The 'Monday Effect'?

Post by JoMoney » Fri Jun 12, 2015 10:53 pm

It may be that negative information is more often released on Friday's, hoping investors will have a softer reaction given some market down time over the weekend. Announcements get released all the time, but it could be that bad announcements are more frequently held off until Friday, and Monday is the first opportunity to move on it.
I know I've seen this in practice in the workplace with various things, sometimes layoffs are done on a Friday at the end of the day.
https://www.aeaweb.org/assa/2005/0107_0800_0903.pdf
...Friday releases are associated with a 25 percent higher probability of a negative earnings surprise and a 50 basis points lower abnormal stock return. Finally, we document a similar pattern of strategic behavior for political decisions. The US President is 25 percent less likely to sign on Friday legislation containing good news...
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Re: The 'Monday Effect'?

Post by 691175002 » Fri Jun 12, 2015 11:48 pm

Taking the aggregated return for a particular day doesn't tell you anything because we expect them to vary due to random chance. The correct way to approach this problem would be dummy regressions corrected for multiple testing.

If you flip ten coins and get 6 heads you cannot immediately assume the coin is rigged.

Given the extreme variance in daily returns and the very small margins by which same days "outperform" it is impossible to conclude anything with confidence.

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Re: The 'Monday Effect'?

Post by grabiner » Sat Jun 13, 2015 9:58 pm

JoMoney wrote:It may be that negative information is more often released on Friday's, hoping investors will have a softer reaction given some market down time over the weekend. Announcements get released all the time, but it could be that bad announcements are more frequently held off until Friday, and Monday is the first opportunity to move on it.


This should not affect stock prices because the market inefficiency would be exploitable; you could sell on Friday to protect against the risk of bad news being released after the market closes, then buy back on Monday after any weekend news had affected the price. Attempts to exploit the anomaly would drive down Friday prices and drive up Monday prices until the effect disappeared.
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Re: The 'Monday Effect'?

Post by sawhorse » Sat Jun 13, 2015 10:06 pm

just frank wrote:Huh, I would have thought the up fridays were caused by 401k contributions happening on Fridays.

That was my first thought too. Every employer I've worked for has issued paychecks on Fridays, though sometimes the contributions showed up in the retirement account on Thursday. Many companies pay their match in company stock, so that would contribute to the effect too. It's a small effect, but an existing one nonetheless. I read somewhere that 6% of Procter and Gamble stock is owned by employees, and the company pays part of the employee's salary (not just 401k match) in stock.

One way to test this is to examine the two most common Fridays for paycheck distribution each month. Usually the second and fourth Fridays in my experience although I've had employers use a rolling calendar such that some months we'd get paid three times if the first day of the month was a Friday.

Taylor Larimore wrote:Bogleheads:

Percentage of times S&P 500 Index closed higher than previous day (June 1952 to May 2, 2014):

48.0% Monday
51.5% Tuesday
55.9% Wednesday
52.8% Thursday
56.6% Friday

Source: 2015 Stock Trader's Almanac

Market Timing does not work. Stay the course.

Best wishes.
Taylor

If there's a compelling way to convince someone to time the market, that table is it. The difference between 56.6% and 48.0% is HUGE! With that many data points, it's almost certainly not caused by chance.

But like nispirius said, once the strategy becomes widely known, the advantage goes away, and that's happened in recent years. Plus, it's not like most of us have a choice since contributions come directly from the paycheck.

grabiner wrote:This covers approximately 3100 of each day (62 years * 250 trading days per year / 5 days per week). If you flip a fair coin 3100 times, the standard deviation of the fraction of heads is .009. Thus, even ignoring Monday, the Tuesday-Friday deviations are slightly more than would be expected by random chance, although they may also depend on the scheduling of dividend dates. (For example, ex-dividend Tuesdays may be more common than Wednesdays, Thursdays, or Fridays because of Monday holidays.)

There must be data on ex-dividend dates. Anyone know?

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Rx 4 investing
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Re: The 'Monday Effect'?

Post by Rx 4 investing » Sat Jun 13, 2015 10:28 pm

Back in 2011, CXO Advisory looked at daily closing prices for the S&P 500 Index from 1981 through 2010 (7,301 daily returns, ranging from 1,382 Fridays to 1,546 Wednesdays),

Their conclusion: "In summary, evidence from simple tests on recent data offers little support for belief in exploitable day-of-the-week anomalies in U.S. stock market returns."

http://www.cxoadvisory.com/4049/calenda ... anomalies/
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Re: The 'Monday Effect'?

Post by sawhorse » Sat Jun 13, 2015 10:58 pm

Rx 4 investing wrote:Back in 2011, CXO Advisory looked at daily closing prices for the S&P 500 Index from 1981 through 2010 (7,301 daily returns, ranging from 1,382 Fridays to 1,546 Wednesdays),

Their conclusion: "In summary, evidence from simple tests on recent data offers little support for belief in exploitable day-of-the-week anomalies in U.S. stock market returns."

http://www.cxoadvisory.com/4049/calenda ... anomalies/

The second chart is consistent with what nispirius cited. They found this effect in the early 90's, and it disappeared by virtue of having been found.

I absolutely cannot see how their last set of charts (Tuesdays) doesn't show a pattern. That's a very strong trend. Of course, now that it's publicized, they effect will probably disappear.

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Re: The 'Monday Effect'?

Post by Martin » Sun Jun 14, 2015 6:01 am

grabiner wrote:
Martin wrote:For grins I check the number of the S&P since the early fifties. Here are the numbers of the annualized returns if all days were for example Mondays.

Monday - (-14.5%)
Tuesday - 10.8%
Wednesday - 21%
Thursday - 10.9%
Friday -19.3%


This is a statistic on the value of the index, not adjusted for dividends. Therefore, it probably means that more stocks go ex-dividend on Mondays than on any other day of the week. If a stock pays a dividend on a fixed day of the month (every month, quarterly, or annually), it will go ex-dividend 3/7 of the time on Monday; the stock price and its contribution to the S&P drop over the weekend but investors don't lose any money.

Taylor Larimore wrote:Percentage of times S&P 500 Index closed higher than previous day (June 1952 to May 2, 2014):

48.0% Monday
51.5% Tuesday
55.9% Wednesday
52.8% Thursday
56.6% Friday

Source: 2015 Stock Trader's Almanac


This covers approximately 3100 of each day (62 years * 250 trading days per year / 5 days per week). If you flip a fair coin 3100 times, the standard deviation of the fraction of heads is .009. Thus, even ignoring Monday, the Tuesday-Friday deviations are slightly more than would be expected by random chance, although they may also depend on the scheduling of dividend dates. (For example, ex-dividend Tuesdays may be more common than Wednesdays, Thursdays, or Fridays because of Monday holidays.)


The data I used was pulled off Yahoo finance historical data. I used the adjusted close which I believe has all the dividends factored in. Here is the explanation given on yahoo.

"Dividend multipliers are calculated based on dividend as a percentage of the price, primarily to avoid negative historical pricing.

For example, when a $0.08 cash dividend is distributed on Feb 19 (ex- date), and the Feb 18 closing price is $24.96, the pre-dividend data is multiplied by (1-0.08/24.96) = 0.9968."

I can't see how your theory of 3/7's occurring on Monday would account for the low numbers on Mondays. Can see how they would positively impact the Friday returns.

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Re: The 'Monday Effect'?

Post by nisiprius » Sun Jun 14, 2015 7:20 am

Let's suppose the effect exists. How big is it? Is an individual member of the mass affluent, buying retail, going to squeeze out enough extra return to overcome costs? Can you really do better chasing this effect than you can do just by using mutual funds and trying to get your personal weighted-average expense ratio down?

The most Siegel will say for this effect is that if you are already committed to individual stock trades (for some other reason), you may want to consider the effect when deciding what day to make the purchases and sales. That much seems fairly harmless, except for psychological effects (getting sucked into trading, getting euphoric when the day-of-the-week strategy works and depressed when it doesn't).
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Re: The 'Monday Effect'?

Post by Martin » Sun Jun 14, 2015 7:33 am

nisiprius wrote:Let's suppose the effect exists. How big is it? Is an individual member of the mass affluent, buying retail, going to squeeze out enough extra return to overcome costs? Can you really do better chasing this effect than you can do just by using mutual funds and trying to get your personal weighted-average expense ratio down?

The most Siegel will say for this effect is that if you are already committed to individual stock trades (for some other reason), you may want to consider the effect when deciding what day to make the purchases and sales. That much seems fairly harmless, except for psychological effects (getting sucked into trading, getting euphoric when the day-of-the-week strategy works and depressed when it doesn't).


I agree completely with this. While interesting, I haven't figured out how "the little guy" could use it to their advantage other than how you described in your second paragraph.

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Re: The 'Monday Effect'?

Post by midareff » Sun Jun 14, 2015 7:46 am

The Stock Trader's Almanac by the Hirsh's (Wiley Publisher) presents information a few years ago that a five day period around the last three and first two days of the month accounted for a much larger than proportional percentage of long term gains. It was rehashed in the 2014 version on page 88.

Whether or not the pattern continues is another question, as is what use it is to us as investors.

If you are looking for market patterns, real or imagined, these guys have them all. .. that's what they do.

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Re: The 'Monday Effect'?

Post by joer1212 » Sun Jun 21, 2015 3:02 am

nisiprius wrote:Let's suppose the effect exists. How big is it? Is an individual member of the mass affluent, buying retail, going to squeeze out enough extra return to overcome costs? Can you really do better chasing this effect than you can do just by using mutual funds and trying to get your personal weighted-average expense ratio down?

The most Siegel will say for this effect is that if you are already committed to individual stock trades (for some other reason), you may want to consider the effect when deciding what day to make the purchases and sales. That much seems fairly harmless, except for psychological effects (getting sucked into trading, getting euphoric when the day-of-the-week strategy works and depressed when it doesn't).


If you could continuously purchase shares a few basis points cheaper than average for much of the year, that would result in respectable extra returns over many years. If the Monday Effect is real, all that would be required to take advantage of it is to shift the day of the week you make your contribution to your 401(k) (if that's possible and/or easy to do-- haven't tried it).

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Re: The 'Monday Effect'?

Post by joer1212 » Sun Jun 21, 2015 3:08 am

691175002 wrote:Taking the aggregated return for a particular day doesn't tell you anything because we expect them to vary due to random chance. The correct way to approach this problem would be dummy regressions corrected for multiple testing.

If you flip ten coins and get 6 heads you cannot immediately assume the coin is rigged.

Given the extreme variance in daily returns and the very small margins by which same days "outperform" it is impossible to conclude anything with confidence.


Agreed. In fact, I did state that the veracity of the Monday Effect can only be determined over a long time period. I've observed its occurrence over the past 2 years, but that's probably too small a sample to claim it exists.

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Re: The 'Monday Effect'?

Post by joer1212 » Sun Jun 21, 2015 3:14 am

sawhorse wrote:
just frank wrote:Huh, I would have thought the up fridays were caused by 401k contributions happening on Fridays.

That was my first thought too. Every employer I've worked for has issued paychecks on Fridays, though sometimes the contributions showed up in the retirement account on Thursday. Many companies pay their match in company stock, so that would contribute to the effect too. It's a small effect, but an existing one nonetheless. I read somewhere that 6% of Procter and Gamble stock is owned by employees, and the company pays part of the employee's salary (not just 401k match) in stock.

One way to test this is to examine the two most common Fridays for paycheck distribution each month. Usually the second and fourth Fridays in my experience although I've had employers use a rolling calendar such that some months we'd get paid three times if the first day of the month was a Friday.

Taylor Larimore wrote:Bogleheads:

Percentage of times S&P 500 Index closed higher than previous day (June 1952 to May 2, 2014):

48.0% Monday
51.5% Tuesday
55.9% Wednesday
52.8% Thursday
56.6% Friday

Source: 2015 Stock Trader's Almanac

Market Timing does not work. Stay the course.

Best wishes.
Taylor

If there's a compelling way to convince someone to time the market, that table is it. The difference between 56.6% and 48.0% is HUGE! With that many data points, it's almost certainly not caused by chance.

But like nispirius said, once the strategy becomes widely known, the advantage goes away, and that's happened in recent years. Plus, it's not like most of us have a choice since contributions come directly from the paycheck.

grabiner wrote:This covers approximately 3100 of each day (62 years * 250 trading days per year / 5 days per week). If you flip a fair coin 3100 times, the standard deviation of the fraction of heads is .009. Thus, even ignoring Monday, the Tuesday-Friday deviations are slightly more than would be expected by random chance, although they may also depend on the scheduling of dividend dates. (For example, ex-dividend Tuesdays may be more common than Wednesdays, Thursdays, or Fridays because of Monday holidays.)

There must be data on ex-dividend dates. Anyone know?


Finally some hard data to confirm my suspicions! But I'm skeptical that the Monday Effect has been lost recently. If anything, I've noticed it a lot as of late (~2 yrs).

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Re: The 'Monday Effect'?

Post by David Jay » Sun Jun 21, 2015 3:20 am

691175002 wrote:Taking the aggregated return for a particular day doesn't tell you anything because we expect them to vary due to random chance. The correct way to approach this problem would be dummy regressions corrected for multiple testing.

If you flip ten coins and get 6 heads you cannot immediately assume the coin is rigged.

Given the extreme variance in daily returns and the very small margins by which same days "outperform" it is impossible to conclude anything with confidence.


In fact, a statistics prof once told me that for his intro class, he had everyone in the class (except for 1 person ) flip a coin 25 times and record their answers. He asked the class to pick one person (in his absence) and have that one person make up their answers, not actually flip a coin. Then he would come back into the room, collect the answers and point out the person who created the "fake" answer. The fake answers were always too non-random, no "fake" answer ever contained a string of 4 in a row. Almost every real coin flip result has a string of more than 4 in a row.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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JoMoney
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Re: The 'Monday Effect'?

Post by JoMoney » Sun Jun 21, 2015 4:02 am

David Jay wrote:...Almost every real coin flip result has a string of more than 4 in a row.

Ah yes! The powers of momentum at work... so pervasive it's found even in random coin flips :D
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Re: The 'Monday Effect'?

Post by sawhorse » Sun Jun 21, 2015 10:42 am

691175002 wrote:Taking the aggregated return for a particular day doesn't tell you anything because we expect them to vary due to random chance. The correct way to approach this problem would be dummy regressions corrected for multiple testing.

If you flip ten coins and get 6 heads you cannot immediately assume the coin is rigged.

Given the extreme variance in daily returns and the very small margins by which same days "outperform" it is impossible to conclude anything with confidence.

If you a flip ten coins and get 6 heads, you cannot immediately assume the coin is rigged. If you flip 1000 coins and get 600 heads, you have to be very suspicious. (The probability of getting 600 or more heads in such a situation is 0.0000000001364.) If you flip 1000000 coins and get 600000 heads, that's fishier than a seafood market. Sample size matters.

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Re: The 'Monday Effect'?

Post by Maynard F. Speer » Sun Jun 21, 2015 12:51 pm

Anecdotally at least, in the UK, I always expect poorer returns on a Monday ..

UK markets are interesting .. There's much less of an investing culture here - I think there's also more caution and conservatism among investors .. Many UK funds are holding 20-50% cash at the moment - I doubt the same proportion of global funds are doing similar

Despite performance tracking the Dow Jones quite closely, UK markets are much more difficult to track with moving-average momentum rules .. Also a region where active funds have comfortably outperformed over 1, 3, 5 and 10-year periods

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cashinstinct
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Re: The 'Monday Effect'?

Post by cashinstinct » Mon Jun 22, 2015 11:50 am

Don't look for the effect this week.

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