10 takeaways from the weekend effects and short-selling

  • The intuition of short-position in the weekend- the inability to trade over the weekend causes short sellers to close their positions on Friday ad reestablish new short positions on Mondays, causing stock prices to rise on Friday and fall on subsequent Mondays.
  • Stocks eligible for short-selling are large and liquid stocks.
  • Strong weekend effects are more present for both the stocks that were allowed for shortselling and those that were not.
  • Short sellers tend to close greater volatile stocks than less volatile ones. Thus, the weekend effect is stronger among highly volatile stocks.
  • Investors are more active short sellers of stocks on Monday, particularly following bad news in the market.
  • Trading activities on Monday are consisted of less sophisticated individual investors.
  • Monday effect, where short sellers are active, occurs primarily in the last two weeks of the month.
  • The weekend effect is not a U.S phenomenon, its phenomenon exists more in major international equity markets.
  • Two researchable hypotheses:
    • Only shortable stocks exhibit a significant increase in the weekend effect from the period before to the period after they become eligible for short selling.
    • There should be a significant increase in the difference between the weekend effects of shortable and nonshortable stocks from the pre-event to the post-event period.
  • The weekend effect is most prominent in stocks with high levels of short interest and that the weekend effect disappears only for those stocks on which options are traded.

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