Risky Short Positions and Investor Sentiment: Evidence from the Weekend Effect in Futures Markets

Journal of Futures Markets, Forthcoming

47 Pages Posted: 7 May 2014 Last revised: 26 Jun 2020

Date Written: October 7, 2019

Abstract

Theoretical predictions and empirical results are ambiguous about existence of seasonality in futures markets. This paper examines one prominent seasonality, i.e. the weekend effect in futures markets and presents rational and behavioral reasons for its existence. Specifically, we document a weekend effect (Friday’s return minus the following Monday’s return) in futures markets. The weekend effect occurs partly because of asymmetric risk between long and short positions around weekends; the weekend effect increases when short positions are relatively more risky. In addition, we find that both lagged and contemporaneous changes in investor sentiment are related to the weekend effect. These results are consistent with the literature on investor sentiment that finds that mood improves on Fridays but deteriorates on Mondays.

Keywords: futures markets; weekend effect; asymmetric risk; investor sentiment; short selling

JEL Classification: G14; G23

Suggested Citation

Singal, Vijay and Tayal, Jitendra, Risky Short Positions and Investor Sentiment: Evidence from the Weekend Effect in Futures Markets (October 7, 2019). Journal of Futures Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2433233 or http://dx.doi.org/10.2139/ssrn.2433233

Vijay Singal

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States
5402317750 (Phone)

Jitendra Tayal (Contact Author)

Ohio University ( email )

Athens, OH 45701
United States

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