Miserable Mondays – A Stock Market Based Explanation

Mondays. Very few of us seem to like them much. In fact, researchers have found some interesting, if depressing, facts about Mondays.

1. The risk of having a heart attack is about 20% – 33% higher on Mondays, depending on the medical study, especially between the hours of 5:00 and 10:00 am.

2. More suicides occur on Monday than any other day of the week.

3. People, on average, can’t even manage to smile on Monday until roughly 11:15 am.

Researchers have put forward various theories on why this sad state of Monday affairs exists. One school of thought is that the stress of having to return to work is too much to bear. Another posits that after a heavy weekend of revelry, the body and psyche are worn down to the point that we become more vulnerable than normal.

I would like to put forth one more theory: the stock market is to blame.

What? The stock market you say?

Actually, yes. It turns out that the worst day of the week for the stock market is Monday. In a study we conducted encompassing data back to 1950 and extending through the end of 2014, we found that Monday alone, among all the days of the week, produced negative returns on average for the stock market.

These look like very small numbers and, in reality, they are. Even though they’re small, that negative sign in Monday’s return column sticks out like a sore thumb. But to really appreciate these returns, you need to consider that there are about 250 trading days each year. For Mondays, that works out to about 48 Mondays per year, while the other days run at about 50 to 51 days per year. When you compound these daily returns you end up with meaningful annual differences.

To put this in perspective, the average non-Monday annualized return is 2.74%, or just over 6.00% more than the annualized returns to Monday (-3.33%). That’s huge!

Let’s use another chart to make the size of this differential clear. I’ve taken the annualized return to the full week, including Monday, and the annualized return to the other four days of the week and compounded them over 20 years (ignoring the potentially significant effect of trading costs). Here are the results:

You can see that the ending value of a market portfolio invested only Tuesday through Friday is almost double that of the portfolio that includes all of the week’s trading days (all five including Monday).

Does this mean you should run out and sell all your stocks at the close on every Friday and then buy them back at the close each Monday? No. Like all anomalies, this one has historically worked most of the time, but not all of the time. Over this 65 year history, Mondays have produced negative compounded returns in 40 years, or 62% of the time. The best day of the week, Wednesday, has actually produced negative compounded returns in 17 years, for a positive return batting average of 74%. So, while on average the returns follow this pattern, it can’t be assumed that any individual year will follow the general trend. It must also be remembered that this study was done without consideration of any trading costs. Including trading costs will reduce the attractiveness of avoiding Monday.

Nonetheless, we do know that Mondays are the worst day of the week for stock returns. Therefore, we propose a new theory for the source of the negative effects that Monday seems to exert on the human condition: fear of losing money in the stock market.

Post from: Insights