Calendar anomalies and the financial trends’ role: an empirical research for the day of the week and the reverse weekend effect in the S&P 500

There have been many researches as to how the calendar anomalies and timings of weeks and months affect the financial stock markets. Research paper Calendar anomalies and the financial trends’ role: an empirical research for the day of the week and the reverse weekend effect in the S&P 500 studies the day of the week effect (DOW) and reverse weekend effect (RWE AG) and analyzes how financial trend in the economy develops two mentioned phenomena and consequently influences the stock market. What do we mean by DOW and RWE AG effect? Let us explain briefly:

Day of week (DOW): It defines as to what is the effect of financial trend in economy on any of the 5 working days in a week in terms of returns on stocks.

Reverse weekend effect (ROW): Based on some recent empirical studies conducted on different samples, returns on Mondays have increased and Friday returns are lower than any other weekdays, the phenomena is known as “reverse weekend effect”

Sample details

Sample Index: S&P500

Basis of selection: The sample period to be selected by the author for testing should have following features:

Period selected on the basis of above criteria: 2000-2013

Results of studies

1. Day of week patterns during growth sub periods:

On analysis of two growth sub periods it was discovered that there is no specific weekday pattern as all the weekdays are positive. Neither is their any weekend effect, as neither Fridays are most profitable nor Mondays the weekday with lowest mean returns.

2. Day of the week patterns during the recession period:

There was no specific day of week pattern identified during recession period. However, it was noted that there is always a day of the week where there is positive activity in the market. Only Thursday and Tuesday presents positive mean returns in first and second recession sub period respectively, and all the other days give negative results.

3. Day of the week during the total sub periods:

Examination of total period showed that Tuesday and Thursday present positive and statistically significant positive return. The reason for this is associated with positive returns on these days in the market in recession periods as discussed in the above heading.

4. Other significant conclusions

Sample results showed that Monday, Wednesday and Firday have positive beta with the financial trend, i.e. they give positive return during growth and negative during recession. All the above results show that changing financial trend affects the DOW pattern.

5. Reverse weekend effect

It was eminent from results of sample that during growth periods Friday to Monday relation is positive and negative during recession periods. This result affirms the previously concluded result for day of week (DOW) patterns that financial trend affects influences the stock market pattern.

Financial trend affect DOW

The research through detailed evaluation of the results in periods of varying financial trend concludes that in fact financial trend affects the DOW pattern and it changes through time as we have seen in the above results (take for example Tuesday and Thursday with mean positive returns in recession period). It goes on to further summarize that Tuesdays and Thursdays have the predisposition for positive returns, being the only days with mean positive returns in recession (table below shows that Tuesday and Thursday have the highest mean return in the given period).

Further, Monday, Wednesday and Friday follow the financial trend in terms of returns. Moreover, Friday-Monday return relationship also changes depending on the financial trend in the economy.