Time - Patterns ID

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Stock Returns and the Weekend Effect by Kenneth R. French (1980): This paper investigates the “weekend effect” in stock returns, which refers to the phenomenon where stock returns on Mondays are significantly lower, and often negative, compared to the returns on other days of the week. French examines two models to explain this pattern: the calendar time hypothesis, which predicts that Monday returns should be three times higher than those on other days due to the accumulation of returns over the weekend, and the trading time hypothesis, which suggests that returns should be consistent across all trading days. The findings, based on data from the Standard and Poor’s composite portfolio from 1953 to 1977, show that neither model fully explains the observed patterns. Instead, the study consistently finds negative returns on Mondays, challenging traditional views of stock return patterns and suggesting that the weekend effect is a persistent anomaly in the market.

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The Disappearing Day-of-the-Week Effect in the World’s Largest Equity Markets by G. Kohers, N. Kohers, V. Pandey, and T. Kohers (2006): This study investigates whether the well-documented day-of-the-week effect, where stock returns on certain days are significantly higher than on others, has diminished over time due to improvements in market efficiency. Analyzing data from the world’s largest developed equity markets over 22 years, the research shows that while the day-of-the-week effect was clearly evident in the 1980s, it appears to have faded during the 1990s. These findings suggest that long-run improvements in market efficiency may have reduced the impact of certain market anomalies in recent periods.

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Political-Economic Cycles in the U.S. Stock Market by Anthony F. Herbst & Craig W. Slinkman (1984): This paper explores the existence of political-economic cycles in the U.S. stock market, analyzing month-end stock market prices from January 1926 through December 1977. The authors find evidence of both two-year and four-year cycles in stock prices, with the four-year cycles peaking around the November presidential election dates. This pattern supports the notion that stock market performance is influenced by the political cycle, reflecting the electorate’s expectations of government economic policies. However, while the four-year cycles align with presidential elections, the two-year cycles do not show a consistent pattern related to political events. The study suggests that while stock prices may reflect political-economic cycles, the impact is more pronounced in the four-year presidential cycle rather than in shorter-term cycles.

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Holiday Effects and Stock Returns: Further Evidence by Chan-Wung Kim and Jinwoo Park (2009): This paper investigates the “holiday effect” in stock returns, which refers to the abnormally high returns observed on the trading day before holidays. The study finds that this effect is consistent across the three major U.S. stock markets: NYSE, AMEX, and NASDAQ. Additionally, the holiday effect is also present in the U.K. and Japanese stock markets, despite differences in holidays and market structures. Interestingly, the study shows that the holiday effect in the U.K. and Japan is independent of the U.S. market, suggesting that the phenomenon is not confined to a single market or set of institutional arrangements. Unlike other seasonal patterns, such as the January effect or the weekend effect, the holiday effect does not show a size effect, meaning that it is consistent across various portfolio sizes.

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Stock Returns Behavior During Holiday Periods: Evidence from Six Countries by Armand Picou (2006, Managerial Finance): This study examines the behavior of stock returns during holiday periods across six major international indices over a ten-year period. Unlike previous research that often highlighted a pre-holiday effect, this paper identifies a significant post-holiday reaction in stock prices, with no evidence supporting a pre-holiday anomaly. The findings reveal that after holidays, stock markets exhibit abnormal returns, suggesting an ex-post holiday effect, which could be exploited for profit by international portfolio managers and investors. The study’s results challenge the conventional understanding of holiday anomalies by demonstrating that the post-holiday effect is more pronounced than any pre-holiday impact.

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Seasonality in the Cross-Section of Stock Returns by Steven L. Heston and Ronnie Sadka (2008): This paper uncovers a new pattern in the cross-section of expected stock returns, identifying a seasonality effect where stocks tend to experience relatively high or low returns during the same calendar month each year. The study builds on the annual cross-sectional autocorrelation pattern documented by Jegadeesh (1990), finding that this pattern persists up to 20 annual lags and significantly contributes to the variation in average stock returns. The seasonality is not explained by factors such as size, industry, earnings announcements, dividends, or fiscal year, and it is observed independently of these variables. While volume and volatility also show similar seasonal patterns, they do not account for the seasonality in returns. The findings suggest that a persistent seasonal effect exists in stock returns, adding a new dimension to our understanding of stock market behavior.

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