www.lesswrong.com/posts/h24JGbmweNpWZfBkM/markets-are-anti-inductive
1 correction found
There was a time when the Dow systematically tended to drop on Friday and rise on Monday, and once this was noticed and published, the effect went away.
The well-known “weekend/Monday effect” (when present) is typically the opposite: Mondays have historically been weaker/negative on average, not stronger, and Fridays have tended to be stronger than Mondays (not systematically down).
Full reasoning
This sentence asserts a specific day-of-week pattern for the Dow: down on Fridays and up on Mondays.
However, the commonly documented calendar anomaly in US equities is the Monday (or weekend) effect, where Monday returns are unusually low/negative compared to other weekdays, and (in many studies) Friday returns are higher than Monday returns.
Evidence contradicting the post’s direction (Dow down Friday / up Monday)
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Dow Mondays have historically been negative on average (not up).
CNBC summarizes historical day-of-week return averages and states that Monday is the only weekday with a negative average rate of return for the Dow. If Monday’s average return is negative, that directly contradicts “rise on Monday.” It also implies Friday is not the day with a uniquely negative average return (contradicting “drop on Friday”). -
Academic literature describes Monday as significantly negative, with other weekdays positive.
In the Journal of Financial Economics paper “Stock returns and the weekend effect” (French, 1980), the abstract reports that across 1953–1977, the average return for the other four days was positive, while Monday was significantly negative. While this result is described for the S&P composite portfolio, it contradicts the post’s claim about a general “Friday down, Monday up” pattern being the notable anomaly; the documented anomaly’s direction is the reverse (Monday weak/negative). -
A finance text’s definition of the weekend effect is Friday > Monday.
An Oxford Academic book chapter abstract defines the weekend effect as relatively large returns on Fridays compared to those on Mondays, again contradicting the post’s “drop Friday, rise Monday” direction.
What this means for the sentence
Even if one argues about whether the effect diminished after being publicized, the post’s specific stated direction (Dow down on Friday and up on Monday) conflicts with the standard, well-documented pattern (Monday weakness/negative; Friday stronger relative to Monday).
3 sources
- Mondays: Even the Markets Hate Them (CNBC, Feb 22, 2010)
“returns on Monday have historically been consistently lower than any other day of the week. In fact, Monday is the only weekday that has a negative average rate of return for the Dow and S&P...”
- Stock returns and the weekend effect (Journal of Financial Economics, 1980) — abstract page
“Although the average return for the other four days of the week was positive, the average for Monday was significantly negative...” (for 1953–1977).
- The Weekend Effect (Beyond The Random Walk, Oxford Academic, 2003) — chapter abstract page
“The weekend effect refers to relatively large returns on Fridays compared to those on Mondays... Monday returns are close to zero or negative...”