Even more striking is the difference between stock returns in the first
and second half of the month.^10 Over the entire 122-year period studied,
the percentage change in the Dow Jones Industrial Average during the
first half of the month—which includes the last trading day of the previ-
ous month up to and including the fourteenth day of the current month—
is almost nine times the gain that occurs during the second half.^11
The average percentage changes in the Dow Jones Industrial Aver-
age over every calendar day of the month are shown in Figure 18-5. It is
striking that the average percentage gain on the last trading day of the
month (and the thirtieth calendar day, when that is not the last trading
day) and the first six calendar days is more than equal to the entire re-
turn for the month. The net change in the Dow Industrials is negative for
all the other days.
The strong gains at the turn of the month are probably related to the
inflow of funds into the equity market from monthly pay cycles. Al-
though this phenomenon has attenuated in recent years, the return in
the first half of the month is still more than three times the return in the
second half of the month since 1990.
DAY-OF-THE-WEEK EFFECTS
Many people hate Mondays. After two days of relaxing and doing pretty
much what you like, having to face work on Monday is a drag. And
stock investors apparently feel the same way. Monday has been by far
the worst day of the week for the market. Over the past 121 years, the re-
turns on Monday have been decisively negative—so negative that if
Monday returns were instead like Tuesday through Friday, the Dow In-
dustrial Average would have reached 68 million today!
Although investors hate Mondays, they have relished Fridays. Fri-
day has been the best day of the week, yielding price returns about three
times the daily average. Even when markets were open on Saturday
(every month before 1946 and nonsummer months before 1953), Friday
price returns were the best.
The Monday and Friday effects are not confined to U.S. equity mar-
kets. Studies by Keim and Hawawini have shown that throughout most
316 PART 4 Stock Fluctuations in the Short Run
(^10) R. A. Ariel, “A Monthly Effect in Stock Returns,”Journal of Financial Economics, vol. 18 (1987), pp.
161–174.
(^11) The difference in the returns to the Dow stocks between the first and second halves of the month
is accentuated by the inclusion of dividends. Currently, about two-thirds of the Dow Industrial
stocks pay dividends in the first half of the month, which means that the difference between the first
and second half returns are accentuated even more.