This paper presents evidence of the existence of a return effect on European stock markets coinciding with New York Stock Exchange (NYSE) holidays, which is particularly marked after positive closing returns on the NYSE the previous day. The effect is large enough to be exploited by trading index futures. This anomaly cannot be explained by seasonal effects, such as the day of the week effect, the January effect or the pre-holiday effect, nor is it consistent with behavioural finance models that predict positive correlation between trading volume and returns. However, examination of factors such as information volume or investor mix provides a reasonable explanation. Accounting and Finance 53 (2013) 111-136 nevertheless testified to a large number of such persistent effects in a wide variety of return series, across a broad range of stock markets.Seasonal effects are one of the more well-known abnormal return patterns, in particular, the day-of-the-week effect (see Marbely, 1990 andAbraham andIkenberry, 1994), the January effect (see Keim, 1988), the preholiday effect (see Smidt, 1988 or Meneu andPardo, 2004) and the summer vacation effect (Hong and Yu, 2009). The Monday effect is usually attributed to a preponderance of bad news over the weekend and to the high proportion of individual traders in the Monday morning investor mix. Fiscal motives and strategic behaviour on the part of institutional investors are the usual explanations given for the January Effect. The reasons for the pre-holiday effect are somewhat more complex, however, although there also appears to be some connection with the activity of individual traders, whose risk exposure is greater when trading alongside informed investors and who have difficulties in covering their positions prior to a holiday. Finally, the summer vacation effect appears to be related to a trading lull because of a significant percentage of both large-and small-scale investors being on holiday, this reduction in trading activity is associated with a significant stock return dip. The above effects may also be accompanied by derivative expiration day effects, a common phenomenon resulting from the effect of market-on-close orders by arbitrageurs to unwind their stock positions, speculative strategies around the expiration date, market manipulation and the kind of option and settlement procedure (see Klemkosky, 1978or Corredor et al., 2001.As far as we are aware, however, there is no academic evidence for another familiar stock market pattern, namely the seasonal effect on European markets during trading sessions coinciding with NYSE closure for one of the six US public holidays. These days are neither holidays nor pre-holidays in Europe; they are simply days on which there is no trading on the largest stock market in the world, from which European traders receive most of their market signals. 1 On days such as these, there are two factors that can make EU markets more likely to show some kind of average return or return variance pattern. One is that institutional tradin...
This paper presents evidence of the existence of a return effect on European stock markets coinciding with New York Stock Exchange (NYSE) holidays, which is particularly marked after positive closing returns on the NYSE the previous day. The effect is large enough to be exploited by trading index futures. This anomaly cannot be explained by seasonal effects, such as the day of the week effect, the January effect or the pre‐holiday effect, nor is it consistent with behavioural finance models that predict positive correlation between trading volume and returns. However, examination of factors such as information volume or investor mix provides a reasonable explanation.
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