Do Short Sellers Cause the Weekend Effect?

30 Pages Posted: 11 Sep 2003

See all articles by Honghui Chen

Honghui Chen

Department of Finance, University of Central Florida

Vijay Singal

Virginia Tech

Multiple version iconThere are 2 versions of this paper

Date Written: July 2003

Abstract

We claim that speculative short sellers are partly responsible for the weekend effect. Concerned with their inability to trade over the weekend and in an attempt to reduce their risk exposure, short sellers close their speculative positions on Fridays and re-establish new short positions on Mondays, causing higher returns on Friday than on Monday. We find evidence consistent with this claim. Stocks with higher short interest exhibit greater weekend effect than stocks with lower short interest. Examination of the weekend effect for IPOs, short-interest stocks, and highly volatile stocks lend additional support for our hypothesis. Although it is difficult for investors to directly trade individual stocks to profit from the weekend effect, they can protect themselves against the weekend effect by not selling stocks on Mondays and not buying on Fridays.

Keywords: short sales, Monday, Friday, seasonality, day-of-the-week, anomaly, mispricing, short selling, weekend effect

JEL Classification: G12, G14

Suggested Citation

Chen, Honghui and Singal, Vijay, Do Short Sellers Cause the Weekend Effect? (July 2003). Available at SSRN: https://ssrn.com/abstract=429844 or http://dx.doi.org/10.2139/ssrn.429844

Honghui Chen

Department of Finance, University of Central Florida ( email )

PO Box 161400
Orlando, FL 32816
United States
407-823-0895 (Phone)

Vijay Singal (Contact Author)

Virginia Tech ( email )

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
782
Abstract Views
3,400
rank
31,998
PlumX Metrics