Holidays and the market

An academic paper (Ariel, 1990) was published with the finding that the trading day prior to holidays in the US market had an average return 14 times greater than the average for the other days in the year. This, and other papers, found that the day immediately before holidays had the highest returns (in the period around holidays), with the third day before the holidays having the next highest return and the day following the holiday having negative returns.

More recently this was updated in a paper (Ziemba and Dzahabarov, 2011) that found that the holiday effect had diminished in the 1990s and 2000s and that the out-performance was occurring largely in just the third day before holidays.

Does such a holiday effect exist in the UK market?

The following charts show the results of analysis of the daily returns of the FTSE 100 Index around holidays. The days studied were the four trading days immediately prior to holidays, H(-4) to H(-1), and the three trading days after holidays, H(+1) to H(+3). A holiday was defined as a 3-day (or longer) period with no trading.


The following chart shows the average returns for the seven trading days around holidays for the period 1984-2013.

Holiday effect FTSE 100 average returns [1984-2013]We can see that, as with the US studies, H(-3) and H(-1) were strong during the holiday periods. Although, unlike the US studies, the day after a holiday, H(+1), was also found to be strong – this day has an average return of 0.17% (six times greater than the average return for all days in the year).

The following chart shows the proportion of positive returns for the same period.

Holiday effect FTSE 100 positive returns [1984-2013]The profile is broadly similar to that for the average returns: H(-1) and H(-3) are strong, as is H(+1). The weakest day around holidays has been H(+3)  – the only day with a negative return and proportion of positive returns under 50%.


To look at the persistency of these results, the following charts restrict the study to the more recent period 2000-2013.

Holiday effect FTSE 100 average returns [2000-2013]Holiday effect FTSE 100 positive returns [2000-2013]

It can be seen that the UK holiday effect has changed slightly in recent years.H(-1) is still relatively strong, H(-3) less so, but the main change has been the relative strength of H(+1).

References for the holiday effect

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