RES EAR C H Open Access
Day-of-the-week returns and mood:
an exterior template approach
10 Aharonovich St., Holon, Tel Aviv,
Rule- and template-based pattern-recognition methods are alternative ways to identify
various patterns in stock prices alongside more traditional econometric tools. In this
study, we generate an exterior template of mood scores from two perplexingly similar
samples of mood scores 50 years apart. The mood scores template enables us to deploy
a direct test of the behavioral explanation for the day-of-the-week effect. Our evidence
shows that the day-of-the-week mood template is a potentially valid explanation of the
day-of-the-week effect. Subperiod analysis suggests that the magnitude of the day-of-
the-week effect has declined over time. That decline, however, is not uniform across size
deciles and is more pronounced in larger capitalization deciles. There is no decline
though in the ability of mood to explain the day-of-the-week effect.
Keywords: Pattern recognition, Template, Day-of-the-week effect, Monday effect,
A large body of research investigates the day-of-the-week effect in US stock returns.
Some studies mainly focus on the large negative abnormal return on Monday (e.g.,
Kelly, 1930; French, 1980), and some on both the Monday-negative and Friday-positive
abnormal returns (e.g., Chen and Singal, 2003). Other studies suggest, however, that
the day-of-the-week effect is not limited to Friday and Monday (e.g., French, 1980;
Keim and Stambaugh, 1984; Birru, 2017). Keim and Stambugh (1984) and Birru (2017),
for example, indicate a tendency for returns to improve during the week.
Different studies propose a number of explanations for the day-of-the-week effect,
including measurement errors (Gibbons and Hess, 1981), settlement procedures
(Gibbons and Hess, 1981; Lakonishok and Levi, 1982), and the timing of new informa-
tion (Defusco et al., 1993; Damodaran, 1989; Dyl and Maberly, 1988). A more recent
explanation by Chen and Singal (2003) relates the Monday-negative and Friday-
positive abnormal returns to the activity of short sellers around the weekend.
Another possible explanation for the day-of-the-week effect is the behavioral hypoth-
esis, which relates the day-of-the-week pattern of returns to the pattern of improving
mood throughout the week. The behavioral hypothesis emerges from a line of research
in psychology, which suggests that lower mood is associated with more prudent behav-
ior and reduced risk taking (e.g., Cole et al., 1998; Bader, 2005; Kahnman, 2011). Lower
mood and the resulting increased prudence at the beginning of the week can therefore
© The Author(s). 2017 Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International
License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium,
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indicate if changes were made.
Zilca Financial Innovation (2017) 3:30