A survey of the Monday effect literature.

Introduction

An extensive and long-standing literature documents calendar patterns in asset returns. In the inaugural edition of the Review of Economic Statistics, Persons (1919) makes reference to a January effect in equity securities, as one of several "seasonals" in stock returns.

Another seasonal, the Monday effect, the tendency for Monday stock returns to be low relative to other weekdays and on average negative, provides the focus of this survey paper and other papers in this issue. Maberly (1995) shows that financial practitioners were aware of the Monday effect as early as the late 1920s. (See Kelly, 1930.) Then, as now, the existence of negative returns on Mondays was a puzzling phenomenon. Why should investors on Friday or Saturday buy securities that, based on historical data, should be expected to exhibit negative returns the following trading day?

Academic researchers have spent considerable effort attempting to document and, with limited success, to explain the tendency for asset returns to be negative on Monday. In recent years a new dimension has arisen that presents both obstacles and opportunities for explaining the Monday effect. Monday returns for large-firm equities have become positive, and in some years these returns are significantly higher than returns for other weekdays.

This survey serves as an introduction to a series of papers that examine the Monday effect including the shift from negative Monday returns to positive Monday returns.

Documentation of the Monday Effect

An extensive literature documents that weekday returns vary with the day of the week across various assets and markets. A persistent finding of this literature is a tendency for asset returns to be negative on Mondays. This literature began with documentation of low Monday returns of U.S. equity securities by market practitioners. An extensive academic literature applies more sophisticated statistical tools to show differences in U.S. equity returns across weekdays and also identifies similar effects in other equity markets and other asset markets. This section provides a brief overview of these findings.

Early Practitioner Studies

Market practitioners identified the Monday effect at ]east as early as the 1920s, well in advance of the advent of studies manipulating electronic databases. Kelly (1930) cites a three-year statistical study that identified Mondays as the worse day to buy stocks. He ascribes the cause of the low Monday returns to, among other factors, weekend decision making processing by individual investors. Fields (1931) studies conventional market wisdom and searches for a low-Saturday-return effect in the DJIA. Fields finds (consistent with a Monday effect) that Saturday's average closings are higher than the average of adjacent Friday and Monday closings. (1)