Why is there sadness in the stock market on Monday? Weekend effect is the main reason… know about it

Stock markets all over the world are closed on weekends i.e. Saturday and Sunday. The weekend effect is much greater on weekends. This effect is seen in stock markets around the world. The “weekend effect” is a major trend in stock markets around the world. Weekend effect also known as Monday effect. This is an anomaly that is seen in stock prices as the weekend passes. Actually it is believed that the prices are higher on Friday but on Monday these prices become slightly lower. There is a special reason behind this, let us look at it.

Many researches have revealed that the weekend effect has actually existed since 1885. Originally, this pattern was identified by Gibbons and Hayes in 1981. This pattern does not conform to expected behaviors prescribed by market efficiency principles. According to the market hypothesis, stock prices are random. Investors cannot make abnormal profits by using historical prices.

According to these principles, anomalies such as the weekend effect should not exist, as they reflect a regular pattern of price changes that can be predicted. It can be taken advantage of, which is contrary to the notion of market efficiency. Weekend effect patterns in returns and volatility can allow investors to take advantage of relatively regular market changes.

Weekend effect in Indian stock market
Specific studies focusing on the Indian stock market, such as those conducted by Roger Ignatius in 1992 and later by Golaka Nath and Manoj Dalvi in ​​2004, confirmed the mild presence of the weekend effect during their respective study periods. Despite confirming its existence, researchers have struggled to pinpoint a definitive cause for the effect in the Indian context.

Know why there is sadness on Monday
Some researchers have attributed part of the weekend effect to the settlement period. Let us tell you that the Indian stock market largely follows the T+1 settlement system. This means that transactions related to stock purchases will take one day to settle. If an investor buys shares on Monday, he has to pay for the said shares by Tuesday. Stock purchased on Tuesday must be paid for and delivered by Wednesday. However, since the stock market is closed on Saturday and Sunday, transactions made on Friday will have to be settled on Monday. This means that investors who buy shares on Friday get two additional days to pay their purchased amount. This means that buyers can have shares, and pay for them two days later than they otherwise would have had to. For people investing or trading large sums of money, such as institutional investors, these two extra days mean two less days of interest payments. Higher demand for shares due to buying preference may lift the market on Friday.

Another perspective proposed is that companies have a tendency to release unfavorable news after the market closes on Friday. This is so that investors take two days to understand the bad news and the impact on share prices is minimal. Then, the reaction to bad news – in the form of a decline in investor confidence and a selloff of stocks – comes on Monday. This may have contributed to pulling the stock market down at the beginning of the week. Various models attempt to explain fluctuations in stock returns by analyzing fundamental factors such as a company’s financial information. However, there are still some aspects of these fluctuations that cannot be explained by these models.

These unexplained fluctuations can be attributed to factors such as fundamentals trends, economic cycles, and news events that influence investor sentiment. Despite numerous studies, the “weekend effect” in stock returns remains a complex phenomenon that is not fully understood by traditional financial theories. This effect is likely influenced by institutional behavior, news timing, and investor sentiment.

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