Do Short Sellers Cause the Weekend Effect?
Journal of Investment Management, Forthcoming
Posted: 11 Sep 2003
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.
Note: This is a description of the paper and not the actual abstract.
Keywords: short sales, Monday, Friday, seasonality, day-of-the-week, anomaly, mispricing, short selling, weekend effect
JEL Classification: G12, G14
Suggested Citation: Suggested Citation