Why don't stock prices go up on payday?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
mudphudstud
Posts: 42
Joined: Fri Aug 06, 2010 12:45 pm

Why don't stock prices go up on payday?

Post by mudphudstud » Thu Feb 09, 2017 9:37 pm

Maybe I am figuring this wrong, but it seems likely to me that a not-insignificant portion of cash influx into the market occurs on paydays (in the form of automatic payroll deductions), which tend to be Fridays. Is there a discernible effect on prices? If not, why not? I suppose it's highly predictable, meaning it has probably been arbitraged to death, but interesting to think about...

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Why don't stock prices go up on payday?

Post by Pajamas » Thu Feb 09, 2017 9:42 pm

I have never worked anywhere where the deductions from my paycheck were immediately invested and the delay often varied.

In fact, at one place I worked, there were such long delays that even the sort of people who don't know what their salary is complained about it until it was corrected.

Stocks do tend to move with market inflows and outflows, though, such as in "window-dressing" moves and end-of-year selling for tax loss harvesting.

Jack FFR1846
Posts: 7799
Joined: Tue Dec 31, 2013 7:05 am

Re: Why don't stock prices go up on payday?

Post by Jack FFR1846 » Thu Feb 09, 2017 9:43 pm

I think your assumption of a "payday" being standard is an incorrect one.

I get paid every other week. It hits my credit union at 12:01 Thursday morning.
My wife gets paid same day at about 8pm at night.
Those who don't have direct deposit in my company are paid 12:01 Friday morning.
A previous job, I was paid once a month (can't remember what day)
I do remember one other job where I was paid on Tuesday.
My last job, I was paid on the 1st and 15th.

To complicate this....when does money hit 401k's? Mine is 8 days from the time I get my pay.
Bogle: Smart Beta is stupid

Mako
Posts: 109
Joined: Wed Feb 28, 2007 9:34 am
Location: Elkton, MD

Re: Why don't stock prices go up on payday?

Post by Mako » Thu Feb 09, 2017 9:51 pm

Yeah, I don't think it's as consistently Friday as you think, and even if it is the day invested seems to vary a lot.

My official pay day is Thursday, but money gets invested the Tuesday before. Direct deposit actually goes in the Monday before, though often it's available on Saturday. Shrug

SVT
Posts: 229
Joined: Mon Oct 13, 2008 8:56 am

Re: Why don't stock prices go up on payday?

Post by SVT » Thu Feb 09, 2017 9:52 pm

I get paid on the 10th of every month.

Geologist
Posts: 1187
Joined: Fri Jan 02, 2009 7:35 pm

Re: Why don't stock prices go up on payday?

Post by Geologist » Thu Feb 09, 2017 10:02 pm

I am paid on the last business day of the month. Sometimes this is a Friday, but not usually. Having said that, there is a lot of other market transactions going on that in toto are very large. Don't assume that paydays are the only or largest event in the market, just because it is the largest to you.

User avatar
rob
Posts: 2974
Joined: Mon Feb 19, 2007 6:49 pm
Location: Here

Re: Why don't stock prices go up on payday?

Post by rob » Thu Feb 09, 2017 10:03 pm

Seems it always jumps when my pays get deposited :? ... but yeah My pays are also set to dates not days... sometimes mid week. Plus there is some delay on the deposit.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

Geologist
Posts: 1187
Joined: Fri Jan 02, 2009 7:35 pm

Re: Why don't stock prices go up on payday?

Post by Geologist » Thu Feb 09, 2017 10:05 pm

Another key factor is not everyone is buying the same thing with their pay. When I worked in a large private company, a non-trivial number of my colleagues were splitting half their 401k money into company stock and half into the stable value fund. The company stock was a Fortune 50 company, so the company payroll was a small portion of daily trading. The stable value fund had no effect on the stock market.

mudphudstud
Posts: 42
Joined: Fri Aug 06, 2010 12:45 pm

Re: Why don't stock prices go up on payday?

Post by mudphudstud » Thu Feb 09, 2017 10:16 pm

Interesting... thanks all for your thoughts. I went back to double check and, yes, my contributions are hitting the market on payday.

User avatar
Epsilon Delta
Posts: 7430
Joined: Thu Apr 28, 2011 7:00 pm

Re: Why don't stock prices go up on payday?

Post by Epsilon Delta » Thu Feb 09, 2017 10:17 pm

In addition to the above:

If stocks went up on Friday, the arbs would notice and stocks would go up on Thursday. Then the meta-arbs would notice and stocks would go up on Wednesday. Then the meta-meta-arbs ...

There are limits to arbitrage, but they are probably close to the limits to detect a link between payday and stock prices.

Raryn
Posts: 54
Joined: Sun Dec 01, 2013 9:39 am

Re: Why don't stock prices go up on payday?

Post by Raryn » Thu Feb 09, 2017 10:45 pm

I get paid on the 1st and 16th.

inbox788
Posts: 5506
Joined: Thu Mar 15, 2012 5:24 pm

Re: Why don't stock prices go up on payday?

Post by inbox788 » Thu Feb 09, 2017 10:47 pm

mudphudstud wrote:Maybe I am figuring this wrong, but it seems likely to me that a not-insignificant portion of cash influx into the market occurs on paydays (in the form of automatic payroll deductions), which tend to be Fridays. Is there a discernible effect on prices? If not, why not? I suppose it's highly predictable, meaning it has probably been arbitraged to death, but interesting to think about...
First of all, employees are paid an insignificant amount of pay. Next, an insignificant number of employees are actually buying stocks with their pay; most are paycheck-to-paycheck. And finally, those that are buying stock are buying an insignificant number of shares.

A few surprises. Assume $100k/year salary, so $4k/2-week period. With a 10% savings rate * 300,000, that's $120M.
IBM trades 3-4M shares at $175+ or $700M. Might add around 10% to one day volume. Amazon is 3M shares at $800, or $2.4B, less than 5%. BRK.A 250 shares at $0.25M plus BRK.B 3M shares at $165, so similar to IBM.

https://en.wikipedia.org/wiki/List_of_l ... ted_States
5 International Business Machines 377,757
8 Amazon.com 341,000
10 Berkshire Hathaway 316,000
Last edited by inbox788 on Thu Feb 09, 2017 10:56 pm, edited 1 time in total.

Bacchus01
Posts: 1832
Joined: Mon Dec 24, 2012 9:35 pm

Re: Why don't stock prices go up on payday?

Post by Bacchus01 » Thu Feb 09, 2017 10:52 pm

What day is payday?

In my career I've been paid weekly on Fridays, biweekly on fridays, biweekly on Thursday's, semi monthly on the 1st and 15th and monthly on the 1st.

Paydays are all over the place.

Then you have when money gets deposited. When it comes to my 401k, the delay from payday to deposit have been all over the place.

User avatar
Bodacious
Posts: 30
Joined: Fri Aug 12, 2016 12:12 am
Location: Coachella Valley, CA

Re: Why don't stock prices go up on payday?

Post by Bodacious » Thu Feb 09, 2017 11:05 pm

I wasn't aware of standard paydays. I get paid every other Wednesday and my wife gets paid on the 7th and 22nd each month.

flyingaway
Posts: 1892
Joined: Fri Jan 17, 2014 10:19 am

Re: Why don't stock prices go up on payday?

Post by flyingaway » Thu Feb 09, 2017 11:08 pm

I think most people send their contributions to whatever funds in their portfolios, but the fund managers do not have to buy any stocks on any particular day.

User avatar
whodidntante
Posts: 4052
Joined: Thu Jan 21, 2016 11:11 pm

Re: Why don't stock prices go up on payday?

Post by whodidntante » Thu Feb 09, 2017 11:47 pm

Cumulative payroll deductions and automatic investments nationwide are not large enough to make the market step change upwards.

User avatar
TinkerPDX
Posts: 276
Joined: Sun Jun 08, 2014 4:38 pm

Re: Why don't stock prices go up on payday?

Post by TinkerPDX » Fri Feb 10, 2017 12:13 am

Have wondered the same thing, and whether I'd be clever to buy on different days. But the only alternative is to wait, and no matter the day of the week, month, etc., on average, waiting a day means missing out on gains.

Nate79
Posts: 3493
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Why don't stock prices go up on payday?

Post by Nate79 » Fri Feb 10, 2017 12:15 am

Even if it was true it would have been exploited long ago.

Joel
Posts: 209
Joined: Tue Apr 30, 2013 12:27 am

Re: Why don't stock prices go up on payday?

Post by Joel » Fri Feb 10, 2017 1:44 am

For what it's worth, my wife and I are both paid on the 15th and last day of the month. HSA contributions are invested monthly around the 3rd. Ive set our Roth IRA contributions to be made around the 6th, 11th, 19th, and 25th so that my purchases are spread evenly throughout the month. This works for us. Sort of dollar cost averaging, to a certain extent.
My investment policy statement: https://www.bogleheads.org/forum/viewtopic.php?t=190093

TOJ
Posts: 365
Joined: Wed Mar 02, 2016 9:19 pm

Re: Why don't stock prices go up on payday?

Post by TOJ » Fri Feb 10, 2017 9:14 am

Regardless of the specific day the investments take place, there is a huge amount of money flowing into the stock market on a regimented basis, regardless of price or performance. It's hard for me to wrap my round around it sometimes. Not necessarily the amount of money, but that millions of us in index funds are shoveling in more money each month and what it does to the PE ratio of all those companies. They aren't doing anything differently, but we buy regardless.

User avatar
DaftInvestor
Posts: 4057
Joined: Wed Feb 19, 2014 10:11 am

Re: Why don't stock prices go up on payday?

Post by DaftInvestor » Fri Feb 10, 2017 9:21 am

Agree with others - there is no standard payday.
Not a single job I've ever had had a similar schedule nor even the same interval.
I haven't had a "weekly" paycheck in many years but realize many do.
I currently get paid on the 15th and 31st each month.
My last job was every other Thursday.
A local teacher I know get paid on Wednesdays.

4strings
Posts: 139
Joined: Fri Feb 19, 2010 4:49 pm

Re: Why don't stock prices go up on payday?

Post by 4strings » Fri Feb 10, 2017 9:22 am

I have always thought about this from the perspective of 401k contributions and especially company matches. There has to be a massive influx of capital into the stock market on these days...I wonder if anyone has ever done a study to examine the impact :confused

User avatar
oldcomputerguy
Posts: 3325
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: Why don't stock prices go up on payday?

Post by oldcomputerguy » Fri Feb 10, 2017 9:26 am

My former workplace used to pay every other Thursday, then moved to twice a month (15th and last day), then recently moved to every other Friday. DW gets paid on the 26th of every month. Judging by the lines at the local brick-and-mortar banks and the local grocery store, there are still quite a few people who get paid every Friday. Just to demonstrate that it varies widely.

When we would get paid, sometimes the 401k deposits would show up the very next day, much more often it took between three and seven business days to show up. No rule or reason I could ever discern. But although there was the very rare occasion in which a contribution showed up very late, on the whole they almost always fell well within the federally mandated window, even if the exact dates were unpredictable.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

User avatar
simplesimon
Posts: 3164
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Why don't stock prices go up on payday?

Post by simplesimon » Fri Feb 10, 2017 9:57 am

I believe the OP is overestimating how significant the dollar amount is for payroll contributions relative to how much is being traded per day.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Why don't stock prices go up on payday?

Post by dbr » Fri Feb 10, 2017 10:11 am

simplesimon wrote:I believe the OP is overestimating how significant the dollar amount is for payroll contributions relative to how much is being traded per day.
Payday going into 401Ks and the like is most likely nearly invisible against the volume of stock trades day in and day out from all the professionally managed wealth out there and other business deals involving buying and selling asset by people miles away from paydays. In the same light, the amount of bond debt held by individuals like us is very small compared to what is held by finanacial companies, institutions, and even whole countries.

User avatar
dm200
Posts: 18389
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Why don't stock prices go up on payday?

Post by dm200 » Fri Feb 10, 2017 10:29 am

1. Most paydays are not Fridays. Thursday is common (biweekly) as well, as are the 15th and last day of month, or 5th and 20th.

2. The time between paydays and 401k funds being invested varies

3. I doubt the total amount going into stocks is that significant a part of the market.

4. There is an additional delay/drag as funds going into mutual funds actually hots the stock market.

5. A lot of 401k money goes into bonds, MM funds, etc.

alshayed
Posts: 59
Joined: Fri Aug 19, 2016 1:34 pm

Re: Why don't stock prices go up on payday?

Post by alshayed » Fri Feb 10, 2017 10:39 am

My employer pays every Thursday, but 401k contributions usually invest on the Tuesday before payday. However all the options are mutual funds, so they don't likely cause actual stock trades to occur immediately - I believe MF's use new money to pay out exiting money first, and then the net change eventually gets invested in the market but no idea how soon.

User avatar
jhfenton
Posts: 3308
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: Why don't stock prices go up on payday?

Post by jhfenton » Fri Feb 10, 2017 11:24 am

My employer is also fast. Payday is every other Friday (including today), but our 401(k) deferrals were invested yesterday. The purchased shares show up in our account this morning. Our HSA deferrals also show up today, but they have to be swept to the investment account, so they get invested on the Monday after payday.

thatme
Posts: 83
Joined: Wed Feb 18, 2015 12:54 pm

Re: Why don't stock prices go up on payday?

Post by thatme » Fri Feb 10, 2017 11:27 am

Interesting. I didn't realize that some people's 401k contributions didn't hit right on payday. Mine hits the same day (or next business day), but my wife's 401k contributions don't show up for 5-7 days after she gets paid and I just thought it was an oddity of her employer, but I guess not.

LiterallyIronic
Posts: 799
Joined: Sat Dec 05, 2015 10:36 am

Re: Why don't stock prices go up on payday?

Post by LiterallyIronic » Fri Feb 10, 2017 11:33 am

I get paid the 5th and the 20th. When I didn't have direct deposit, I got a paper check on those days. Now, with direct deposit, it usually comes on those days but sometimes hits sooner, if those days land on a weekend.

MrKnight
Posts: 266
Joined: Fri Dec 19, 2014 12:24 pm

Re: Why don't stock prices go up on payday?

Post by MrKnight » Fri Feb 10, 2017 12:42 pm

mudphudstud wrote:Maybe I am figuring this wrong, but it seems likely to me that a not-insignificant portion of cash influx into the market occurs on paydays (in the form of automatic payroll deductions), which tend to be Fridays. Is there a discernible effect on prices? If not, why not? I suppose it's highly predictable, meaning it has probably been arbitraged to death, but interesting to think about...
Because it's baked in.

Knowledge that the price will go up tomorrow makes it go up today (as people try to buy it before it goes up).

dpc
Posts: 397
Joined: Sat Aug 27, 2011 1:41 pm

Re: Why don't stock prices go up on payday?

Post by dpc » Fri Feb 10, 2017 12:53 pm

Traditionally, for people working in the trades, payday is always Friday. If a contractor were to miss a Friday payroll, there would be - trouble. I suspect this applies to a minority of workers these days.
"Worrying is like paying interest on a debt that you might never owe" -- Will Rogers

User avatar
Aptenodytes
Posts: 3751
Joined: Tue Feb 08, 2011 8:39 pm

Re: Why don't stock prices go up on payday?

Post by Aptenodytes » Fri Feb 10, 2017 2:08 pm

My first inclination in these cases is to eyeball the data. The easiest question to ask is "Does trading volume vary significantly by day of month?" It would take a bit more work to do a more precise exploration of "Does trading volume go up significantly on the days most likely to be paydays?" It only took 3 minutes to do the first one and I don't feel like doing the second.

I don't see anything big enough to make a difference in prices. There are some differences by day that are statistically significant, but the magnitude seems trivial.

Image

User avatar
celia
Posts: 8370
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Why don't stock prices go up on payday?

Post by celia » Fri Feb 10, 2017 3:11 pm

mudphudstud wrote:Maybe I am figuring this wrong, but it seems likely to me that a not-insignificant portion of cash influx into the market occurs on paydays (in the form of automatic payroll deductions), which tend to be Fridays.
What about people who need to live off their assets and withdraw monthly or on Fridays? My living expenses are probably more than your (bi-)weekly contributions.

That is part of the reason each fund has a small cash holding--so that adding and subtracting money from the fund doesn't force buys or sells.

inbox788
Posts: 5506
Joined: Thu Mar 15, 2012 5:24 pm

Re: Why don't stock prices go up on payday?

Post by inbox788 » Fri Feb 10, 2017 3:36 pm

Aptenodytes wrote:My first inclination in these cases is to eyeball the data. The easiest question to ask is "Does trading volume vary significantly by day of month?" It would take a bit more work to do a more precise exploration of "Does trading volume go up significantly on the days most likely to be paydays?" It only took 3 minutes to do the first one and I don't feel like doing the second.

I don't see anything big enough to make a difference in prices. There are some differences by day that are statistically significant, but the magnitude seems trivial.

Image
Nice graph. I'll conclude by eyeballing that there's no association between the paydays we've discussed here, mainly 1st and 15th. There is the issue of 2nd and 4th Fridays in a month, but many are every 2 weeks, so it shifts to 1st, 3rd, 5th. Between all the different possibilities, the actual paydays are fairly well distributed. A day of week might show more trading on Friday if there is a payday effect, which gets averaged out looking that the date of the month distribution.

Anyway, IMO, the peak in the 3rd week is institutional buying, and is also associated with monthly options expiration. The highest peak on the 30th/31st is probably procrastination by everyone, so no clear indication if it's more buying or selling (and I'm looking beyond the simple match of one buyer for each seller) .

Grogs
Posts: 432
Joined: Tue Mar 24, 2015 4:55 pm

Re: Why don't stock prices go up on payday?

Post by Grogs » Fri Feb 10, 2017 4:29 pm

I get paid on the 26th, and my 401k contribution goes in the same day. It always seems like the stock market goes up that day, but that's probably my imagination. :D

Another thing to consider is that if you're buying a mutual fund, I believe they have a bit of leeway. They might put it into cash reserves and then use that for the next redemption request for example. I remember watching a show and they were interviewing someone from Vanguard who was describing some of the tricks they use when buying large lots of shares to prevent being front-runner by high frequency traders. If there is a payday that's large enough to move the market for certain funds, I imagine they've figured out ways to spread the purchase out to eliminate the problem.

Longdog
Posts: 1105
Joined: Sun Feb 09, 2014 6:56 pm
Location: Philadelphia

Re: Why don't stock prices go up on payday?

Post by Longdog » Fri Feb 10, 2017 4:40 pm

It's because of me. I invest several times throughout the month, sometimes on fixed days of the week and sometimes on fixed days of the month. So, it's kind of uniformly spread out across each month.
Steve

TomCat96
Posts: 524
Joined: Sun Oct 18, 2015 12:18 pm

Re: Why don't stock prices go up on payday?

Post by TomCat96 » Fri Feb 10, 2017 8:21 pm

mudphudstud wrote:Maybe I am figuring this wrong, but it seems likely to me that a not-insignificant portion of cash influx into the market occurs on paydays (in the form of automatic payroll deductions), which tend to be Fridays. Is there a discernible effect on prices? If not, why not? I suppose it's highly predictable, meaning it has probably been arbitraged to death, but interesting to think about...

In all likelihood paydays are too small and inconsistent to affect stock prices.

I believe the Federal government TSP purchases securities on wednesdays every other week. Because of that purchase, it would be theoretically possible to front run the trade. I looked up some quick stats. In 2015, the average federal salary was 86365. In 2014, there were 4.1 million federal workers.

Assuming each of them put the maximum amount possible 18k per year, would amount to $692 per biweek, with a TSP contribution of $166 for the matching. $858 dollars. Clearly not every federal employee contributes anywhere close to 18k per year, but assuming they do, that would mean 858 x 4.1 million dollars enters the market every other wednesday. That amount is 3.5 billion.

Now let's assume that all of that money goes into the C fund (the S&P index)
Clearly not every federal employee contributes 100% of their retirement allocation to the C Fund, but assume they do.

The question then is "Is 3.5 billion dollars worth of purchases is made every other wednesday, enough to make the stock prices go up?"

The Average daily volume for e-minis alone is 140 billion a day. That's not counting the purchases of actual underlying securities.

In other words, even taking into account the payday of the largest employer, making the max contributions, and assuming they all bought one fund, it still would be a drop in the bucket.

Mako
Posts: 109
Joined: Wed Feb 28, 2007 9:34 am
Location: Elkton, MD

Re: Why don't stock prices go up on payday?

Post by Mako » Fri Feb 10, 2017 8:32 pm

I am a federal employee but like I mentioned above, that money goes into the TSP on Tuesday. I'm pretty sure though that there are a few different payroll offices that have different days. I'm sure one of them goes in Wednesday. So even less impact than you say.

User avatar
dm200
Posts: 18389
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Why don't stock prices go up on payday?

Post by dm200 » Sat Feb 11, 2017 8:43 am

dpc wrote:Traditionally, for people working in the trades, payday is always Friday. If a contractor were to miss a Friday payroll, there would be - trouble. I suspect this applies to a minority of workers these days.
Many decades ago, I was employed by IBM. At that time, IBM employees were paid weekly and payday was Monday. The story was that the company founder, Thomas Watson, did not want employees speniding their paychecks over the weekend on alcohol.

User avatar
dm200
Posts: 18389
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Why don't stock prices go up on payday?

Post by dm200 » Sat Feb 11, 2017 8:47 am

Mako wrote:I am a federal employee but like I mentioned above, that money goes into the TSP on Tuesday. I'm pretty sure though that there are a few different payroll offices that have different days. I'm sure one of them goes in Wednesday. So even less impact than you say.
Federal employees are paid every two weeks (biweekly). There are two different biweekly cycles. Within each cycle, there are 2 or 3 different days of the week that are employee paydays. So, even just for federal employees, there are 4-6 different paydays that split up the flow of funds through the financial system.

tim1999
Posts: 3483
Joined: Tue Dec 16, 2008 7:16 am

Re: Why don't stock prices go up on payday?

Post by tim1999 » Sat Feb 11, 2017 9:22 am

One of my father's former employers was notorious among the employees for holding on to 401k contributions for months before transferring them to the fund company...they were trying to collect interest on the "float" to make a profit off of it. I think this practice was either discontinued due to some new law or enough employees complaining.

User avatar
dm200
Posts: 18389
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Why don't stock prices go up on payday?

Post by dm200 » Sat Feb 11, 2017 9:29 am

tim1999 wrote:One of my father's former employers was notorious among the employees for holding on to 401k contributions for months before transferring them to the fund company...they were trying to collect interest on the "float" to make a profit off of it. I think this practice was either discontinued due to some new law or enough employees complaining.
Not uncommonly, holding 401k contributions for an extended period could be due to the financial problems of the employer.

z3r0c00l
Posts: 1167
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: Why don't stock prices go up on payday?

Post by z3r0c00l » Sat Feb 11, 2017 10:19 am

There are more up days than down days so, on average, stock prices do go up on paydays and every other weekday. 8-)

Post Reply