Review of Quantitative Finance and Accounting, 22: 5–14, 2004

c 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.

The Reversing Weekend Effect: Evidence from the U.S.

Equity Markets
ANTHONY YANXIANG GU
Jones School of Business, State University of New York, 115D South Hall, 1 College Circle, Geneseo, NY 14454,
USA Tel.: (585) 245-5368, Fax: (585) 245-5467
E-mail: gu@geneseo.edu

Abstract. The well-known weekend effect has been reversing in Major U.S. indices from late 1980s to late
1990s. The correlation between Monday and Friday returns also exhibited a declining trend, and fluctuated around
zero in the 1990s. A power ratio method is developed to measure consistently the relative contribution of Friday
and Monday returns to the return of the week in each individual year. The revealed dynamics of the anomaly
explains why previous researchers report different or conflicting findings. The anomaly may not be necessarily
related to firm size.

Key words: weekend effect, anomaly, reverse

JEL Classification: G1

Introduction

Numerous studies have reported abnormally high average Friday returns and significantly
negative average Monday returns in the U.S. stock markets. Pioneer research on the so
called “weekend effect” can be found in Cross (1973), French (1980), Gibbons and Hess
(1981), Hindmarch (1984), Keim and Stambaugh (1984), and Jaffe and Westerfield (1985).
Several researchers explored the possible factors that contribute to the anomaly.
Hindmarch (1984) suggests that institutional trades can partially explain the effect, and
Sias and Starks (1995) believe that institutional traders are the primary drivers of the ef-
fect. Lakonishok and Maberly (1990) and Abraham and Ikenberry (1994) report that share
price does worse on Mondays than on other days of the week, because individual investors
typically sell stocks on Monday. Branch (1974, 2001) suggests that the Monday effect may
be related to weekly cycle in news releases and to weekly pattern in interest rate changes.
Similarly, Steeley (2001) reports that a systematic pattern of market-wide news arrivals
drives the anomaly in the UK stock market. Branch and Echevarria (1991) indicate that
the effect occurs mainly in stocks that do not go ex-dividend on Monday. Schatzberg and
Datta (1992) suggest that some factor unrelated to information arrivals causes the weekend
effect. Coutts and Hayes (1999) indicate that the effect is in part a stock exchange account
settlement effect in major UK indices.
Keim and Stambaugh (1984) report a strong negative relation between Friday returns and
firm size. Abraham and Ikenberry (1994) notice stronger weekend stock return differences
in small and medium-sized companies. Cross (1973) finds positive correlation between
6 GU

Monday and Friday returns. Abraham and Ikenberry (1994) see the positive correlation
between Monday and Friday returns as “most acute in small-and medium-sized companies.”
Other researchers report different findings. Cornell (1985) and Najand and Yung (1994)
see no weekend effect in the S&P 500 index futures: the effect seems to exist, they argue,
because the returns are affected by conditional heteroskedasticity. Connolly (1989) points
out that the effect disappears for some years and then reappears for others. Wang, Erickson
and Li (1997) find that the Monday effect occurs primarily in the last two weeks (the fourth
and fifth weeks) of the month. For the UK stock market, Board and Sutcliffe (1988) see
the significance of the anomaly decreasing over time, and Steeley (2001) notes that the
weekend effect disappeared in the 1990s. Sullivan, Timmermann and White (2001) assert
that calendar effects, including day of the week effect, no longer remain significant in the
context of 100 years of data as the full universe. Brusa, Liu and Schulman (2000) find
reverse weekend effect in recent data for major stock indices: Monday returns are positive
and significantly greater than the preceding Friday’s. They also report that the reverse
weekend effect is strong and significant in large-company stocks. Seyed and Perry (2001)
report evidence of reversal of the Monday effect in major US equity markets.
Existing studies offer inconsistent or even conflicting reports, because they look at con-
stant coefficients of dummy variables or average returns of the days for their relatively
short sample periods, except Seyed and Perry (2001) who estimated recursive coefficients.
Traditional methods cannot reveal the dynamics of the effect because during the whole
period one type of observation could overweigh the other if the number of weeks with an
abnormal Friday (Monday) is greater than the number of weeks without it, or if the effect
is extremely strong in certain weeks. This study develops a power ratio method to calculate
the effect of each individual year, and hence answers the question why previous researchers
report inconsistent or conflicting results, and reveal the dynamics and trend of the effect.

The methodology and data

To reveal possible trends of the weekend effect, one needs to measure the return of Friday and
Monday relative to the return in the remaining trading days of the week for each individual
year. It would be difficult to measure the weekend effect when a Friday (Monday) return
and return of the week have opposite signs, for example, when a Friday (Monday) return
is positive, and the week’s return is negative, or when Friday (Monday) return is negative
and the week’s return is positive, and when both Friday (Monday) and the week’s return
are negative. A power ratio method is developed that gives a consistent measurement of the
contribution of Friday and Monday returns to the return of the week. The Friday, Monday,
and weekly returns are calculated as the natural logarithm differentials of the index values.
Now define

R ∗F = (1 + mean Friday return)5 (1)

where the power 5 is used because there are 5 trading days in a week. Obviously R ∗F is
always greater than zero. And

Rw = (1 + mean weekly return) (2)

THE REVERSING WEEKEND EFFECT 7

Rw is always greater than zero. Then, compose a ratio

R ∗F
(3)
Rw

which may be called “power ratio” since R ∗F is a factor of power. Now it should be clear
that when R ∗F /Rw > 1, then Friday return is higher than the average return of other days of
the week. When R ∗F /Rw = 1, then Friday return is as good as the average return of other
days of the week; and when R ∗F /Rw < 1, then Friday return is below the average return of
other days of the week. The same power ratios are calculated for Monday returns for each
year.
The daily close data includes the Dow Jones 30 Industrial Average (DJIA) and the S&P
Composite [based on 90 stocks before March 1, 1957 and on 500 stocks (the S&P 500)
thereafter] from 1953 (thus eliminating the issue of market openings on Saturdays, the New
York Stock Exchange was open on Saturdays before June 1952), the Russell 1000 from
1993, and the Russell 2000 and 3000 from 1988. All the data is through 2001. The S&P
500 and the Russell indices are value weighted. Using value weighted indices make the
effect of large stocks on returns more apparent. The DJIA is price weighted but using it
does not overstate the effect of small stocks on returns because there is no small stock
in it. The Russell 2000 index contains the smallest stocks, the Russell 1000 and 3000
indices are composed of many smaller stocks compared to the DJIA and the S&P 500. This
study chooses indices so as to avoid issues related to portfolio formation, such as size-beta
correlation, size-price correlation, and survivorship.
As a common practice in the literature, a week is dropped if the Monday or Friday in
the week is a holiday, and if the week has less than five trading days because of holidays.
Excluding weeks with holidays can avoid the so called “holiday effect.”

Dynamics of the anomaly

Charts 1 through 5 display the dynamics of the anomaly. The averages of all the years
are presented at the right end of each chart. The weekend effect exists for over half of the
49 years for the DJIA and the S&P 500, and for 12 of the 15 years for the Russell 2000.
For the DJIA, positive Friday and negative Monday returns are dominating. As shown
in Chart 1, the average Friday return is 0.067 percent, and the average Monday return is
negative 0.059 percent. For the 49-year period, 29 years have negative average Monday
returns and 32 years have positive average Friday returns. 32 years’ Friday power ratios are
above one, or Fridays on average outperform the rest of the week in these years; 29 years’
Monday power ratios are below one, or Mondays on average underperform the rest of the
week in these years.
The effect is stronger for the S&P 500. As shown in Chart 2, the average Friday return
is 0.077 percent, and the average Monday return is negative 0.066 percent, positive Friday
and negative Monday returns are dominating for the 49 year period. 36 years experienced
positive Friday returns and 32 years had negative Monday returns. 36 years’ average Friday
power ratios are greater than one and 32 years’ average Monday power ratios are smaller than
8 GU

Chart 1. Declining weekend effect, the DJIA.

Chart 2. Decling weekend effect, the S&P 500.

one. The Russell 2000 exhibits the strongest and most consistent weekend effect: as shown in
Chart 3, the average Friday return is 0.093 percent and the average Monday return is negative
0.085 percent. There is no pattern of consistent weekend effect for the Russell 1000 and 3000,
as shown in Charts 4 and 5, which may be due to the relatively short and recent periods of
data.
There is some evidence for the finding (Kaim and Stambaugh, 1984; Abraham and
Ikenberry, 1994) that the effect is more apparent for small firm stocks. The Russell 2000
index consists of the smallest stocks: it exhibits the strongest and most consistent weekend
effect, which supports the size effect of the anomaly in the literature, followed by the S&P
500, and then the DJIA, which comprises stocks of the largest companies. However, the
effect does not exist at all for the Russell 1000 and 3000, which include firms that are much
smaller than those in the DJIA and the S&P 500. This phenomenon challenges the reports
of size effect of the anomaly in the literature; the anomaly may not be necessarily related
to firm size.
THE REVERSING WEEKEND EFFECT 9

Chart 3. No weekend effect, Russell 1000.

Chart 4. Weekend effect, Russell 2000.

Chart 5. No weekend effect, Russell 3000.

10 GU

The anomaly displayed a downward trend since mid 1980s, and disappeared or even
reversed after 1988 for the DJIA and the S&P 500. As shown in the charts, the average
Monday returns of each year exhibit an apparent upward trend for both the indices and the
average Monday returns have in fact turned positive since 1988: only one year since then has
experienced a slightly negative average Monday return. This declining or “reverse” Monday
effect is consistent with those reported by Kamara (1997), Brusa, Liu and Schulman (2000),
and Seyed and Perry (2001). Meanwhile, the average Friday returns of each year exhibit
an obvious downward trend for both the DJIA and the S&P 500. As a result, for the period
1988 to 2001, the average Monday returns for the DJIA is 0.16 percent and the average
Friday returns is negative 0.01 percent. The average Monday and Friday power ratios for
the period are 1.015 and 0.995, respectively. However, there is no apparent trend in the
consistent weekend effect for the Russell 2000.
A regression analysis is conducted to test the significance of the trends. As shown in
Table 1, for both the DJIA and the S&P 500, the trend line of Monday performance exhibit
a significantly positive slope; and the trend line of Friday performance exhibit a signif-
icantly negative slope. The trend lines for the Russell indices do not exhibit statistically
significant slopes, which could be due to the relatively small number of observations. Only
nine years of data is available for the Russell 1000, and fourteen years of data available
for the Russell 2000 and 3000. Regression statistics of the estimated trends are reported in
Table 1.
“Black Monday” (October 19, 1987) is an outlier: for the DJIA, the average Monday
return for the year is −0.68 percent (Rm/Rw = 0.9174) including the outlier, but −0.2
percent (Rm/Rw = 0.9742) excluding the outlier. The numbers are similar for the S&P
500. The charts do not include the outlier: including or excluding the outlier does not
change the direction of the trend.

Table 1. Statistics of the estimated trends

Intercept Std. error Slope Std. error Adj. R 2

DJIA
Monday 0.9707 (0.0059)∗∗∗ 0.0008 (0.0002)∗∗∗ 0.216
Friday 1.0224 (0.0042)∗∗∗ −0.0006 (0.0001)∗∗∗ 0.285
S&P 500
Monday 0.9826 (0.0024)∗∗∗ 0.0004 (0.0001)∗∗∗ 0.366
Friday 1.0099 (0.0022)∗∗∗ −0.0002 (0.0001)∗∗∗ 0.150
Russell 1000
Monday 1.0043 (0.0034)∗∗∗ −0.0002 (0.0005) −0.098
Friday 1.0031 (0.0082)∗∗∗ −0.0006 (0.0013) −0.096
Russell 2000
Monday 0.9939 (0.0047)∗∗∗ −0.0002 (0.0005) −0.070
Friday 1.0028 (0.0051)∗∗∗ 0.0003 (0.0006) −0.066
Russell 3000
Monday 1.0032 (0.0028)∗∗∗ −0.0001 (0.0003) −0.069
Friday 1.0031 (0.0057)∗∗∗ −0.0004 (0.0007) −0.052

This table reports the statistics of the estimated trends in the Monday and Friday performance of the indices.
∗∗∗ Significant at the 1% level.
THE REVERSING WEEKEND EFFECT 11

These results indicate an apparent reversal in the weekend effect from late 1980s to late
1990s for the large-stock (DJIA and the S&P 500) indices. A possible explanation for the
phenomenon is that as the anomaly became well known in the 1980s, more sophisticated
investors would take actions to exploit excess returns. Chow, Hsiao and Solt (1997) find
success in using weekend return pattern to produce superior returns, especially for week-
ends with large negative Friday returns. The excess-return seeking activities may some-
times reverse the effect or eventually make it disappear. Gu and Finnerty (2002) pointed
out that the U.S. stock markets have been gaining efficiency over the last two decades.
The downward trend in the anomaly may indicate further evidence that the markets are
becoming more efficient, or that investors are improving at pricing risk adequately, or
both.
A reexamination of the correlation between Monday and Friday returns reveals a declining
trend of the correlation for the DJIA and the S&P 500. As shown in Charts 6 and 7, the
correlation was generally positive for the DJIA and the S&P 500 before early 1980s when
the weekend effect was apparent, and for the Russell indices, which is in accordance to
the reports of Cross (1973) and Abraham and Ikenberry (1994). However, the correlation
fluctuated around zero in the 1990s for the DJIA and the S&P 500 as the weekend effect
was reversing.
A simple regression analysis of the DJIA shows that the effect is positively related to
volatility and the relation may not be linear. But the causation is not clear, abnormally high
Friday returns and low Monday returns would result in a volatile market, investors may
buy more on Fridays and sell more on Mondays when the market is volatile, or both. In
the regression, the ratio of Rf/Rw to Rm/Rw is used as the dependent variable. The ratios
are all positive, which avoids the problem of different signs. Obviously, the stronger the
effect (higher Friday return and lower Monday return, the greater the ratio. The standard

Chart 6. Correlation between Friday and Monday returns.

12 GU

Chart 7. Correlation between Friday and Monday returns.

deviation and variance of daily returns are the independent variables, which may capture any
nonlinear relation between the effect and volatility. Using daily return volatility is better than
using weekly return volatility for the purpose because a stellar week can increase weekly
volatility. The coefficient for standard deviation is positive (17.096) and that for variance is
negative (−1447.96), and both are significant at one-percent level (with T -values of 3.10
and −3.23, respectively). The adjusted R-square is 0.145. Regressions of other indices did
not result in statistically significant coefficients, but had the same signs as these for the
DJIA.

Conclusion

A reexamination of the weekend effect in the major U.S. stock markets uncovers a declin-
ing trend, even an apparent reversal in the anomaly from late 1980s through late 1990s for
the DJIA and the S&P 500 indices. The reversal of the weekend effect at least logically
indicates that after the effect is well known sophisticated investors may fully or over exploit
the opportunity for abnormal returns, hence eliminating or even sometimes reversing the
effect. The declining and disappearing weekend effect may also represent a trend toward
market efficiency. More experienced and knowledgeable investors along with advanced
information/communication technology (greater quantity, better quality, lower cost of infor-
mation, faster communication and order execution), tend to make the market more efficient
(Gu and Finnerty, 2002). In fact, developed markets are more efficient than less developed
and emerging markets. This may encourage believers of efficient markets to regain some
confidence.
Evidences revealed by this study raise a challenge to the reports of size effect of the
anomaly in the literature. The weekend effect does not exist at all for the Russell 1000
and 3000, which include firms that are much smaller than those in the DJIA and the S&P
500. This study also shows that the correlation between Monday and Friday returns were
THE REVERSING WEEKEND EFFECT 13

generally positive before early 1980s as previous researchers reported, but the correlation
exhibited a declining trend, and fluctuated around zero in the 1990s.
Further research is required to discover unknown factors and the changes in the known
factors that attribute to the anomaly, and to reveal the dynamic correlation between the
weekend effect and the relevant factors. Further tests should be performed to reveal any
trend in other asset market anomalies—such as the January and turn-of-month effects. Also,
we need to watch if the reverse weekend effect during the 1990s will diminish. Finding
possible trends and the factors that contribute to these trends would explain some aspects
of stock price behavior, which would have valuable implications for investment strategies
and risk management.

Acknowledgment

I wish to thank the referee for very helpful comments and suggestions.

References

Abraham, A. and D. Ikenberry, “The Individual Investor and the Weekend Effect.” Journal of Financial and
Quantitative Analysis 29(2), 263–278 (1994).
Aggarwal, R. and R. Pietra, “Seasonal and Day-of-the-Week Effects in Four Emerging Stock.” The Financial
Review 24(4) 541–551 (1989).
Board, J. L. and C. M. Sutcliffe, “The Weekend Effect In UK Stock Market Returns.” Journal of Business Finance
and Accounting 15(2), 199–214 (1988).
Branch, B. and D. Echevarria, “The Impact of Bid-Ask Prices on Market Anomalies.” The Financial Review 26(2),
249–269 (1991).
Branch B., J. Jung and T. Yang, “The Monday Merger Effect.” International Review of Financial Analysis 10,
1–18 (2001).
Brusa, J., P. Liu and C. Schulman, “The Weekend Effect, ’Reverse’ Weekend Effect and Firm Size.” Journal of
Business Finance and Accounting 27(5/6), 555–575 (2000).
Chow, E., P. Hsiao and M. E. Solt, “Trading Returns for the Weekend Effect Using Intraday Data.” Journal of
Business Finance and Accounting 24(3/4) 425–445 (1997).
Chatterjee, A., “Market Anomalies Revisited.” Journal of Applied Business Research 13(4), 47–56 (1997).
Clay, S., “The Nonparallel Weekend Effect in the Stock and Bond Markets.” The Journal of Financial Research
17(4), 531–539 (1994).
Compton, W., “Tax-free Trading on Calendar Stock and Bond Market Patterns.” Journal of Economics and Finance
24(1), 64–77 (2000).
Compton, W. and R. Kunkel, “A Tax-Free Exploitation of the Weekend Effect: A ‘Switching’ Strategy in the
College Retirement Equities Fund (CREF).” American Business Review 17(2), 17–23 (1999).
Compton, W. and R. Kunkel, “Tax-Free Trading on Calendar Stock and Bond Market Patterns.” Journal of
Economics and Finance 24(1), 64–76 (2000).
Connolly, R. A., “An Examination of the Robustness of the Weekend Effect.” Journal of Financial and Quantitative
Analysis 24(2), 133–169 (1989).
Coutts, J. and P. Hayes, “The Weekend Effect, the Stock Exchange Account and the Financial Times Industrial
Ordinary Shares Index: 1987–1994.” Applied Financial Economics 9(1), 67–71 (1999).
Cross, F., “The Behavior of Stock Prices on Fridays and Mondays.” Financial Analysts Journal 29, 67–69
(1973).
Dyl, E., M. Stanley, J. Lakonishok and M. Levi, “Weekend Effects on Stock Returns: A Comment/Reply.” The
Journal of Finance 40(1), 347–351 (1985).
14 GU

Fortune, P., “Are Stock Returns Different Over Weekends? A Jump Diffusion Analysis of the Weekend Effect.”
New England Economic Review 3–20 (1999).
French, D., “The Weekend Effect on the Distribution of Stock Prices: Implications for Option Pricing.” Journal
of Financial Economics 13(4), 547–559 (1984).
French, K., “Stock Returns and the Weekend Effect.” Journal of Financial Economics 8, 55–69 (1980).
Gu, Y. A., “The Declining January Effect: Evidence from U.S. Equity Markets.” Quarterly Review of Economics
and Finance 43(2), 395–404 (2003).
Gu, Y. A., “The Diminishing Weekend Effect: Experience of Five G7 Countries.” Journal of Accounting and
Financial Research 11(5), (2003).
Gu, Y. A. and J. Finnerty, “The Evolution of Market Efficiency: 103 Years Daily Data of the Dow.” Review of
Quantitative Finance and Accounting 18(3), 219–237 (2002).
Higgins, E., S. Howton and S. Perfect, “The Impact of the Day of the Week on IPO Return Autocorrelation and
Cross-Correlation.” Quarterly Journal of Business and Economics 39(1), 57–67 (2000).
Hindmarch, S., D. Jentsch and D. Drew, “A Note on Canadian Stock Returns and the Weekend Effect.” Journal of
Business Administration, Vancouver, 14(2), 163–172 (1984).
Jaffe, J. and R. Westerfield, “The Week-End Effect in Common Stock Returns: The International Evidence.” The
Journal of Finance 40(2), 433–455 (1985).
Kamara, A. “New Evidence on the Monday Seasonal in Stock Returns.” Journal of Business 70, 63–84 (1997).
Keim, D. and R. Stambaugh, “A Further Investigation of the Weekend Effect in Stock Returns.” The Journal of
Finance 39(3), 819–840 (1984).
Kim, C. and J. Park, “Holiday Effects and Stock Returns: Further Evidence.” Journal of Financial and Quantitative
Analysis 29(1), 145–158 (1994).
Lakonishok, J., “The Weekend Effect: Trading Patterns of Individual and Inst.” The Journal of Finance 45(1),
231–244 (1990).
Lakonishok, J. and M. Levi, “Weekend Effects on Stock Returns: A Note.” The Journal of Finance 37(3), 883–889
(1982).
Miller, E., “Why a Weekend Effect?” Journal of Portfolio Management 14(4), 43–49 (1988).
Najand, M. and K. Yung, “Conditional Heteroskedasticity and the Weekend Effect in S&P 500 Index Futures.”
Journal of Business Finance and Accounting 21(4), 603–612 (1994).
Price, V. and M. Theobald, “Seasonality Estimation in Thin Markets.” The Journal of Finance 39(2), 377–392
(1984).
Rogalski, R., “New Findings Regarding Day-of-the-Week Returns Over Trading and Non-Trading Periods: A
Note.” The Journal of Finance 39(5), 1603–1614 (1984).
Schatzberg, J., “The Weekend Effect and Corporate Dividend Announcements.” The Journal of Financial Research
15(1) 69–78 (1992).
Seyed, M. and M. J. Perry, “The reversal of the Monday effect: New Evidence from US Equity Markets.” Journal
of Business Finance & Accounting 28(7/8), 1043–1065 (2001).
Sias, R. and L. Starks, “The Day-of-the-Week Anomaly: The Role of Institutional Investors.” Financial Analysts
Journal 51(3), 58–68 (1995).
Singleton, J. and J. Wingender, “The Nonparallel Weekend Effect in the Stock and Bond Markets.” The Journal
of Financial Research 17(4), 531–539 (1994).
Steeley, J., “A Note on Information Seasonality and the Disappearance of the Weekend Effect in the UK Stock
Market.” Journal of Banking and Finance 25(10), 1941 (2001).
Sullivan, R., A. Timmermann and H. White, “Dangers of Data Mining: The Case of Calendar Effects in Stock
Returns.” Journal of Econometrics 105(1), 249–286 (2001).
Tong, W., “International Evidence on Weekend Anomalies.” Journal of Financial Research (23)4, 495–522 (2000).
Wang, K., J. Erickson and Y. Li, “A New Look at the Monday Effect.” The Journal of Finance 52(5), 2171–2187
(1997).
Ziemba, W., “Comment on ‘Why a Weekend Effect?’” Journal of Portfolio Management 19(2), 93–99 (1993).