Stock Market Volatility, Speculative Short Sellers and Weekend Effect: International Evidence
Affiliation(s)
Department of Finance, Shenzhen University, Shenzhen, China. Department of Economics, Stonehill College, Easton, USA. Shenzhen Stock Exchange, Shenzhen, China. Department of Economics, Boston College, Boston, USA.
Department of Finance, Shenzhen University, Shenzhen, China. Department of Economics, Stonehill College, Easton, USA. Shenzhen Stock Exchange, Shenzhen, China. Department of Economics, Boston College, Boston, USA.
ABSTRACT
We test the Chen and Singal (2003) hypothesis that speculative short sellers add to the selling pressure on Mondays, and hence add to the weekend effect, by examining evidence from 60 market indices. We find strong evidence that, until about a decade ago, the actions of short sellers could explain the weekend effect. Recently, however, the relationship between short sales and the weekend effect is gradually dissipating in developed markets, probably due to the cross-market hedges of short sellers. These findings strongly support, rather than weaken, the Chen and Singal hypothesis.
We test the Chen and Singal (2003) hypothesis that speculative short sellers add to the selling pressure on Mondays, and hence add to the weekend effect, by examining evidence from 60 market indices. We find strong evidence that, until about a decade ago, the actions of short sellers could explain the weekend effect. Recently, however, the relationship between short sales and the weekend effect is gradually dissipating in developed markets, probably due to the cross-market hedges of short sellers. These findings strongly support, rather than weaken, the Chen and Singal hypothesis.
Cite this paper
Zhai, W. , Kazemi, H. , He, J. & Cai, J. (2013). Stock Market Volatility, Speculative Short Sellers and Weekend Effect: International Evidence. Journal of Financial Risk Management, 2, 47-54. doi: 10.4236/jfrm.2013.23008.
Zhai, W. , Kazemi, H. , He, J. & Cai, J. (2013). Stock Market Volatility, Speculative Short Sellers and Weekend Effect: International Evidence. Journal of Financial Risk Management, 2, 47-54. doi: 10.4236/jfrm.2013.23008.
References
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doi:10.2307/2331162 [9] Charoenrook, A., & Daouk, H. (2005). The world pricing of short selling, working paper. [10] Chen, H., & Singal, V. (2003). Role of speculative short sales in price formation: The case of the weekend effect. Journal of Finance, 58, 685-705. doi:10.1111/1540-6261.00541 [11] Christophe, S., Ferri, M., & Angel, J. (2006). Short selling and the weekend effect in stock returns, working paper. [12] Condoyanni, I., O’Hanlon, J., & Ward, C. W. R. (1989). Day of the week effects on stock returns: International evidence. Journal of Business Finance and Accounting, 14, 159-174.
doi:10.1111/j.1468-5957.1987.tb00536.x [13] DeChow, P., Hutton, A. Meulbroek, L., & Sloan, R. (2001). Short sellers, fundamental analysis, and stock returns. Journal of Financial Economics, 61, 77-106. doi:10.1016/S0304-405X(01)00056-3 [14] Dubois, M., & Louvet, P. (1996). The day-of-the-week effect: International evidence. Journal of Banking and Finance, 20, 1463-1484. doi:10.1016/0378-4266(95)00054-2 [15] French, K. (1980). Stock returns and the weekend effect. Journal of Financial Economics, 8, 55-69. doi:10.1016/0304-405X(80)90021-5 [16] Gibbons, M., & Hess, P. (1981). Day of the week effects and asset returns. Journal of Business, 54, 579-596. doi:10.1086/296147 [17] Hindmarch, S., Jentsch, D., & Drew, D. (1984). A note on Canadian stock returns and the weekend effect. Journal of Business Administration, 14, 163-172. [18] Jaffe, J., & Westerfield, R. (1985). The weekend effect in common stock returns: The international evidence. Journal of Finance, 40, 433-454. doi:10.1111/j.1540-6261.1985.tb04966.x [19] Keim, D. (1989). Trading patterns, bid-ask spread, and estimated security returns. Journal of Financial Economics, 25, 75-89. doi:10.1016/0304-405X(89)90097-4 [20] Keim, D., & Stambaugh, R. (1984). A further investigation of the weekend effect in stock returns. Journal of Finance, 39, 819-835. doi:10.1111/j.1540-6261.1984.tb03675.x [21] Lakonishok, J., & Maberly, E. (1990). The weekend effect: Trading patterns of individual and institutional investors. Journal of Finance, 45, 231-244. doi:10.1111/j.1540-6261.1990.tb05089.x [22] Sias, R., & Starks, L. (1995). The day of the week anomaly: The role of institutional investors. Financial Analysts Journal, 51, 58-67. doi:10.2469/faj.v51.n3.1906 [23] Wang, K., Li, Y., & Erickson, J. (1997). A new look at the Monday effect. Journal of Finance, 52, 2171-2186. doi:10.1111/j.1540-6261.1997.tb02757.x
[1] Ariel, R. (1990). High stock returns before holidays: Existence and evidence on possible causes. Journal of Finance, 45, 1611-1626. doi:10.1111/j.1540-6261.1990.tb03731.x [2] Asquith, P., & Muelbroek, L. (1996). An empirical investigation of short interest, working paper. [3] Abraham, A., & Ikenberry, D. (1994). The individual investor and the weekend effect. Journal of Financial and Quantitative Analysis, 29, 263-277. doi:10.2307/2331225 [4] Blau, B., Van Ness, B., & Van Ness, R. (2007). Short selling and the weekend effect for NYSE securities, working paper. [5] Cai, J., Li, Y., & Qi, Y. (2006). The day of the week effect: New evidence from Chinese stock market. The Chinese Economy, 39, 71-88. doi:10.2753/CES1097-1475390206 [6] Cai, J., Kazemi, H. S., He, J., & Zhai, W. (2013). Weekend effect and short sales: International evidence. International Advances in Economic Research, 19, 209-211. doi:10.1007/s11294-013-9398-z [7] Chan, S. H., Leung, W. K., & Wang, K. (2004). The impact of institutional investors on the Monday seasonal. Journal of Business, 77, 967-986. doi:10.1086/422630 [8] Chang, E., Pinegar, J., & Ravichandran, R. (1993). International evidence on the robustness of the day-of-the-week effect. Journal of Financial and Quantitative Analysis, 28, 497-513.
doi:10.2307/2331162 [9] Charoenrook, A., & Daouk, H. (2005). The world pricing of short selling, working paper. [10] Chen, H., & Singal, V. (2003). Role of speculative short sales in price formation: The case of the weekend effect. Journal of Finance, 58, 685-705. doi:10.1111/1540-6261.00541 [11] Christophe, S., Ferri, M., & Angel, J. (2006). Short selling and the weekend effect in stock returns, working paper. [12] Condoyanni, I., O’Hanlon, J., & Ward, C. W. R. (1989). Day of the week effects on stock returns: International evidence. Journal of Business Finance and Accounting, 14, 159-174.
doi:10.1111/j.1468-5957.1987.tb00536.x [13] DeChow, P., Hutton, A. Meulbroek, L., & Sloan, R. (2001). Short sellers, fundamental analysis, and stock returns. Journal of Financial Economics, 61, 77-106. doi:10.1016/S0304-405X(01)00056-3 [14] Dubois, M., & Louvet, P. (1996). The day-of-the-week effect: International evidence. Journal of Banking and Finance, 20, 1463-1484. doi:10.1016/0378-4266(95)00054-2 [15] French, K. (1980). Stock returns and the weekend effect. Journal of Financial Economics, 8, 55-69. doi:10.1016/0304-405X(80)90021-5 [16] Gibbons, M., & Hess, P. (1981). Day of the week effects and asset returns. Journal of Business, 54, 579-596. doi:10.1086/296147 [17] Hindmarch, S., Jentsch, D., & Drew, D. (1984). A note on Canadian stock returns and the weekend effect. Journal of Business Administration, 14, 163-172. [18] Jaffe, J., & Westerfield, R. (1985). The weekend effect in common stock returns: The international evidence. Journal of Finance, 40, 433-454. doi:10.1111/j.1540-6261.1985.tb04966.x [19] Keim, D. (1989). Trading patterns, bid-ask spread, and estimated security returns. Journal of Financial Economics, 25, 75-89. doi:10.1016/0304-405X(89)90097-4 [20] Keim, D., & Stambaugh, R. (1984). A further investigation of the weekend effect in stock returns. Journal of Finance, 39, 819-835. doi:10.1111/j.1540-6261.1984.tb03675.x [21] Lakonishok, J., & Maberly, E. (1990). The weekend effect: Trading patterns of individual and institutional investors. Journal of Finance, 45, 231-244. doi:10.1111/j.1540-6261.1990.tb05089.x [22] Sias, R., & Starks, L. (1995). The day of the week anomaly: The role of institutional investors. Financial Analysts Journal, 51, 58-67. doi:10.2469/faj.v51.n3.1906 [23] Wang, K., Li, Y., & Erickson, J. (1997). A new look at the Monday effect. Journal of Finance, 52, 2171-2186. doi:10.1111/j.1540-6261.1997.tb02757.x