Monday Effect

Definition

The term Monday effect is used to describe a historical trend, whereby the trading pattern of a financial market on the previous Friday will continue at the opening bell on Monday.  The weekend effect is believed to be a result of increased investor pessimism on Saturday and Sunday.

Explanation

Financial markets, such as commodities, bonds, and stocks, typically demonstrate an upward or downward trend over time.  The Monday effect is a hypothesis that states the trend at the closing bell in a Friday will pick up at the opening bell on Monday.  

For example, if the S&P 500 Index were rising just before the closing bell on Friday, the Monday effect would result in a continuation of that increase at the opening bell on Monday.  The definition of the Monday effect is slightly different than that of the weekend effect, which states financial markets have a tendency to decline on Monday.  As is the case with the weekend effect, the Monday effect has been proven empirically via a number of studies; however, the cause of this phenomenon is oftentimes debated.

Related Terms

weekend effect, suckers' rally, January effect, catching a falling knife