Working Paper 98-6
by Peter Fortune

Revised article published in the New England Economic Review (September/October 1999).

The performance of stock prices during breaks in trading has received considerable attention in recent years. While some studies focus on performance surrounding periods of unscheduled trading breaks (trading halts in individual stocks, circuit breakers for exchanges), other studies look at performance around periods of scheduled trading breaks (holidays, weekends).

This paper fits into the second group. We revisit the "weekend effect" in common stock returns. Our focus is on two characteristics of differential returns over intraweek trading days and over weekends: the mean return, or "drift," and the standard deviation of returns, or "volatility."

We find that in the last 18 years the volatility over weekends has been stable, at about 10-20 percent greater for the three days from Friday's close to Monday's close than for a single intraweek trading day. However, while there was a large and statistically significant negative return over weekends prior to 1987, the post-1987 results indicate no weekend drift. In short, the negative weekend drift appears to have disappeared although weekends continue to have low volatility.

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