What impact, if any, does the Easter holiday have on the market?

A previous post looked at the behaviour of the market around holidays (sometimes referred to as the holiday effect). In this post we will narrow the focus to look at the behaviour of share prices around the Easter holiday.

The following chart shows the average daily returns for the FTSE 100 Index for the four days before, and three days after, the Easter holiday over the period 1984-2013.

The general profile of behaviour around Easter is similar to that seen before for all holidays.

The main differences are that H(-4) is significantly weak, and the average returns for the two days immediately before and after Easter are significantly higher than for all holidays. For example, the average return for H(-1) is 0.4% (13 times greater than the average return for all days in the year); for all holidays the figure is 0.2%. The standard deviation for the Easter H(-1) average return is also significantly low.

The following chart is similar to the above, but this time the period studied is 2000-2013.

This second chart suggests that the behaviour of the market around Easter has not changed significantly in recent years.

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.

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.

1984-2013

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

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%.

2000-2013

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

• Ariel, R. A., High stock returns before holidays: existence and evidence on possible causes (1990)
• Arsad, Zainudin and Coutts, Andrew J., Security price anomalies in the London International Stock Exchange: a 60 year perspective (1997)
• Brockman, Paul and Michayluk, David, The persistent holiday effect: additional evidence (1998)
• Cadsby, C. B. and M. Ratner, Turn-of-the-month and pre-holiday effects on stock returns: some international evidence (1992)
• Dumitriu, Ramona and Stefanescu, Razvan and Nistor, Costel, Holiday Effects During Quiet and Turbulent Times (2012)
• Dzhabarov, C. and W. T. Ziemba, Do seasonal anomalies still work? (2010)
• KIM, Chan-Wung and Jinwoo PARK, Holiday Effects and Stock Returns: Further Evidence (1994)
• Lakonishok, J. and S. Smidt, Are seasonal anomalies real? a ninety-year perspective (1988)
• Pardo Tornero, Ángel and Meneu, Vicente, Pre-Holiday Effect, Large Trades and Small Investor Behaviour (2002)
• Swinkels, Laurens A. P. and van Vliet, Pim, An Anatomy of Calendar Effects (2010)
• Thaler, Richard, Anomalies – Seasonal anomalies in security prices II:Weekend, Holiday, Turn of the Month, and Intraday effects (1987)
• Vergin, Roger and McGinnis, John, Revisiting the Holiday Effect: is it on holiday? (1999)
• Dzhabarov, C. and W. T. Ziemba, Do seasonal anomalies still work? (2010)