day of the week effects and asset returns the number of empirical studies using daily stock returns is rapidly increasing researchers generally assume that the distribution of stock returns is identical for all days of the week a convenient statistical assumption but not a necessary condition of market equilibrium nevertheless there are reasons to suspect that the distribution of returns may vary according to the day of the week the most obvious is the impact of weekends on monday s return since monday s return is calculated over three instead of one calender day the mean and variance may well be higher on monday compared with any other daily return perhaps three times as large previous research has examined the daily distribution of stock returns for a monday effect while fama 1965 does not compare daily mean returns he does report that monday s variance is about 20o greater than other daily returns with a traditional distributional assumption regarding the returns on a financial asset specifies that the expected returns are identical for all days of the week contrary to this plausible assumption this paper discovers that the expected returns on common stocks and treasury bills are not constant across days of the week the most notable evidence is for monday s returns where the mean is unusually low or even negative several explanations of the results are investigated but none proves satisfactory aside from documenting significant day of the week effects the implications of the results for tests of market efficiency are examined while market adjusted returns continue to exhibit day of the week effects these effects are no longer concentrated on monday during the last year we have had many conversations with our colleagues throughout the professions we are particularly thankful to the participants at sessions of the western and american finance associations where preliminary versions of this paper were presented special thanks are due to gene fama gailen hite jon ingersoll robert jarrow merton miller clifford smith and rex thompson the expert research assistance of frank rabinovitch and youngsup yun is gratefully acknowledged 1 the list of papers using daily stock returns is too long to name recent examples include charest 1978 dodd 1980 banz 1981 and reinganum 1981

competition and bidding behavior some evidence from the rice market when objects have uncertain value the net effect of competition in sealed bid auctions is ambiguous the risk of succumbing to the winner s curse generally causes bidders to exhibit a non aggressive response in addition to the standard competitive effect sellers can influence the size of the nonaggressive effect by responding to the value uncertainty this paper focuses specifically on individual bidding behavior in a rice auction market in which sellers issue a product quality guarantee the empirical evidence supports my hypothesis that such a guarantee negates the significance of the nonaggressive bidder response

sealed bids sunk costs and the process of competition how do firms recover precontract costs for example suppose 10 firms compete in a sealed bid auction for the right to explore and develop an offshore oil field each spends 500 000 to estimate the value of the field and to prepare its bid suppose this investigation reveals that the tract is worth approximately 20 million if sunk costs do not matter competition dictates that the winner must bid 20 million but if the winner is to recover its prebid costs the maximum offer can be only 19 5 million furthermore long run industry equilibrium considerations suggest that the highest bid will be only 15 million 20 million minus the total bid preparation costs of 5 million if competition forces firms to charge marginal cost why do firms ever invest in resources which become sunk in some industries inframarginal rents can be used to recover these costs however the example above as well as many others involves an all or none deci

a comment on competition and bidding behavior some evidence from the rice market in testing agents responses to increased competition in sealed bid first price rice auctions meyer 1988 makes two erroneous assumptions 1 that agents know ex ante the number of bidders in the auction and 2 that firms forecast resale prices with information unavailable at the time of the auction these two misspecifications are identified and corrected a probit model provides a forecast of market competition and agents bids are modeled as a function of expected competition and factors affecting the value of each rice lot the bias toward zero in meyer s estimated coefficient on market competition is reduced

jumps cojumps and macro announcements we use recently proposed tests to extract jumps and cojumps from three types of assets stock index futures bond futures and exchange rates we then characterize the dynamics of these discontinuities and informally relate them to us macroeconomic releases before using limited dependent variable models to formally model how news surprises explain co jumps nonfarm payroll and federal funds target announcements are the most important news across asset classes trade balance shocks are important for foreign exchange jumps we relate the size frequency and timing of jumps across asset classes to the likely sources of shocks and the relation of asset prices to fundamentals in the respective classes

the bear s lair index credit default swaps and the subprime mortgage crisis during the recent financial crisis abx he index credit default swaps cds on baskets of mortgage backed securities were a benchmark widely used by financial institutions to mark their subprime mortgage portfolios to market however we find that prices for the aaa abx he index cds during the crisis were inconsistent with any reasonable assumption for mortgage default rates and that these price changes are only weakly correlated with observed changes in the credit performance of the underlying loans in the index casting serious doubt on the suitability of these cds as valuation benchmarks we also find that the aaa abx he index cds price changes are related to short sale activity for publicly traded investment banks with significant mortgage market exposure this suggests that capital constraints limiting the supply of mortgage bond insurance may be playing a role here similar to that identified by froot 2001 in the market for catastrophe insurance the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

how successful was the new deal the microeconomic impact of new deal spending and lending policies in the 1930s the new deal during the 1930s was arguably the largest peace time expansion in federal government activity in american history until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of new deal programs over the past decade scholars have developed new panel databases for counties cities and states and then used panel data methods on them to examine the impact of new deal spending and lending policies for the major new deal programs in most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy many of the studies also use instrumental variable methods to control for endogeneity the studies find that public works and relief spending had state income multipliers of around one increased consumption activity attracted internal migration reduced crime rates and lowered several types of mortality the farm programs typically aided large farm owners but eliminated opportunities for share croppers tenants and farm workers the home owners loan corporation s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers the reconstruction finance corporation s loans to banks and railroads appear to have had little positive impact although the banks were aided when the rfc took ownership stakes

the distribution of foreign exchange price changes trading day effects and risk measurement this study investigates the nature of price changes in a variety of major and minor foreign exchange markets the results suggest that the log of price changes over one trading day intervals seems to follow a non normal stable distribution function different measures of location and to lesser extent scale are present for different days of the week dollar denominated price changes are high on mondays and wednesdays and low on thursdays and fridays for all currencies the wednesday thursday result is consistent with the settlement procedures used in foreign exchange transactions in the dollar the friday monday result is consistent with an increase in demand for the dollar prior to the weekend this study offers some previously unavailable results on the nature of price changes in a certain set of speculative markets in particular this is a study of the distributional characteristics of daily and weekly price changes for a number of major and minor foreign exchange markets the results document the existence of non normal stable distributions for price changes in foreign exchange markets these price change distributions differ by day of the week in ways that are only partly attributable to the institutional structure of the market the results of the study are interpreted within the context of understanding how foreign exchange markets operate and within the context of prior studies of stock market data concerned with summarizing the probability distribution of price changes for different intervals including days of the week since bachelier s 1 original treatise that contained the proposition that speculative market prices follow a process that could be described by a normal distribution there have been numerous alternative attempts to describe the stochastic processes which characterize speculative market prices these studies have not resulted in any generalized description of the probability distribution of price changes in such markets indeed the evidence suggests substantial differences in the process among various types of financial instruments the failure to achieve consensus can be traced to the lack of robustness in the statistical procedures employed to estimate processes and to differences in the underlying institutional or economic arrangements which are unique to that market the possibility of differences in the information set used to assess value or differences in technology for transmitting information makes it important to secure additional

in search of the winner s curse earlier papers on the winner s curse have provided theoretical arguments that winning bidders in an auction will incur ex post losses even when all bidders use reasonable ex ante bidding strategies this paper demonstrates that these arguments are erroneous optimal ex ante bidders will never suffer from a winner s curse in an auction where only the winning bid is announced furthermore such bidders will on the average not suffer from a winner s curse in an auction where all bids are announced thus if a winner s curse is a behavioral reality then bidders are not generally using ex ante optimal strategies

competition and prices in usda commodity procurement we evaluate united states department of agriculture usda food procurement auctions the department spends nearly 1 billion a year for products for domestic feeding programs such as the national school lunch program and another 2 5 billion for international food programs usda s purchasing relies primarily on auction mechanisms designed to induce hard manufacturer price competition we compare private sector prices to low bids in 25 000 auctions and find that typical private sector prices substantially exceed usda low bids for comparable products we also assess the effects of competition on low bids low bids fall as the number of bidders increases and the effects are nonlinear additional bidders have a very small effect on prices when there are already five or six bidders but a stronger effect in markets with only one or two bidders even in this highly transparent bidding environment competition matters

from t bills to common stocks investigating the generality of intra week return seasonality the authors investigate the extent to which intra week seasonality still exists and whether its pattern is uniform across three stock indices and treasury bonds with seven different maturities they find that intra week seasonality continues to be significant and that its pattern is not uniform either between the stock indices and the treasury bonds or even among the bonds alone a pattern shared by stocks and bonds is that monday returns become increasingly negative with maturity these findings suggest that neither institutional nor general equilibrium explanations by themselves can explain the pattern of intra week seasonality in securities markets

securitization and distressed loan renegotiation evidence from the subprime mortgage crisis abstract we examine whether securitization impacts renegotiation decisions of loan servicers focusing on their decision to foreclose a delinquent loan conditional on a loan becoming seriously delinquent we find a significantly lower foreclosure rate associated with bank held loans when compared to similar securitized loans across various specifications and origination vintages the foreclosure rate of delinquent bank held loans is 3 to 7 lower in absolute terms 13 to 32 in relative terms there is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers a quasi experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results

potential competition and possible collusion in forest service timber auctions i introduction potential entrants to an imperfectly competitive market in theory limit the ability of existing firms to charge high prices this claim has rarely been tested due mainly to the problems of identifying potential entrants and determining whether established firms perceive them as future competition in previous work neal 1987 finds option bid ask spreads lower when they are eligible for multiple listing kuhlman and johnson 1983 find winning highway construction bids insignificantly related to the number of firms buying plans for the particular project and hurdle et al 1989 show that performance in the airline industry is affected by the number of potential entrants not deterred by economies of scale or scope this paper determines whether potential competition influenced winning bids in forest service oral and sealed bid timber auctions held during 1977 prior to 1977 oral bidding was the dominant method of selling timber in the pacific northwest the national forest management act of 1976 required that sealed bidding be used on all sales with exceptions made only by the secretary of agriculture the sealed bidding requirement was overturned in 1978 after firms in communities dependent upon forest service timber complained that sealed bidding resulted in greater uncertainty in obtaining steady timber supplies 1 firms pay the government for the rights to harvest timber in forest service timber auctions and the highest bid wins bidding theory predicts that greater competition should result in higher winning bids 2 the relevant measure of competition in an oral auction is the actual number of competitive bidders participants in a sealed bid auction however should base their bids on the potential number of competitors timber is costly to haul and timber transportation distances from the sale site to the closest mill of potential competitors are used to define two measures of potential competition the first measure is a simple count of the number of firms whose closest mill lies within the geographical market for forest service timber auctions and is termed potential competition the second results from a probit analysis relating auction participation to hauling distance and is called expected competition the results show that these measures are as expected considerably more important in explaining winning sealed bids however actual competition explains winning bids better than either potential or expected competition under both oral and sealed bidding in addition contrary to expectations increases in hauling distances result in higher winning bids when sealed bidding is used collusion in sealed bid auctions and preclusive bidding a type of collusion in oral auctions are explanations for both of these results the possibility of collusion in sealed bid auctions is supported by an index based on stigler s 1964 theory of oligopoly and feinstein block and nold s 1985 research on bid rigging in highway construction auctions representing the likelihood that a given auction was rigged mead 1966 was among the first to discuss the possibility of preclusive bidding in oral auctions preclusive bidding occurs when firms close to a sale site bid above levels which are profitable to firms farther from the site given that oral bidding entails greater participation costs participants must be present preclusive bidding or the threat of preclusive bidding deters outsider firms from bidding in future oral auctions firms close to the site benefit from the decreased competition and may win at a lower price oral and sealed bid comparisons of winning bid variances overbids and numbers of bidders support the explanation of preclusive bidding in oral auctions public policy should be concerned with obtaining the highest possible value for public timber and ensuring that it is awarded efficiently to the firm having the highest timber value

a further investigation of the weekend effect in stock returns this study uses a longer time period and additional stocks to further investigate the weekend effect we find consistently negative monday returns 1 for the s p composite as early as 1928 2 for exchange traded stocks of firms of all sizes and 3 for actively traded over the counter otc stocks the otc results are based on bid prices and therefore appear to reject specialist related explanations for the 30 individual stocks of the dow jones industrial index the average correlation between friday and monday returns is positive and the highest of all pairs of successive days the latter finding is inconsistent with fairly general measurement error explanations some of the most puzzling empirical findings reported in recent years indicate that the distribution of common stock returns varies by day of the week most notably the average return for monday close friday to close monday is significantly negative cross 3 and french 6 find negative monday returns using the standard and poor s composite index and gibbons and hess 7 find negative monday returns for the 30 individual stocks of the dow jones industrial index 1 this negative monday return or weekend effect has yet to be explained this study undertakes a further investigation of the weekend effect in stock returns we examine additional time periods extending the total period covered to 55 years we examine additional stocks such as those of small low capitalization firms and those traded over the counter in all cases the data exhibit a weekend effect that is at least as strong as that reported in previous studies the study also readdresses potential explanations for the effect such as measurement error but concludes that none of these explanations is satisfactory the first section presents a history of the weekend effect from 1928 through 1982 based on the standard and poor s composite index we essentially double the length of the period beginning in 1953 examined by french 6 the results indicate consistently negative monday returns throughout the 55 year period during much of the 25 year period from 1928 through 1952 the new york stock exchange was open on saturdays so monday s return is then computed from saturday s close to monday s close 2 these returns for one day weekends are consistently negative and not significantly different from the two day weekend

day of the week and intraday effects in stock returns abstract this study examines day of the week effects using hourly values of the dow jones industrial average we find that over the 1963 1983 period the weekend effect has sifted from characterizing active trading on monday to characterizing the non trading weekend over the early part of our sample period negative returns characterize each hour of trading on monday while the return from friday close to monday open is positive in the most recent subperiod monday average hourly returns after noon are all positive and the weekend effect is due to negative average returns from friday close to monday open

market making costs in treasury bills a benchmark for the cost of liquidity abstract we focus on market making costs by examining the daily bid ask spreads for off the run one month treasury bills around two liquidity changing events event one salomon brothers supply shock results in a roughly 2 5 basis point increase in the spread because of an increase in ask prices and event two the long term capital management demand shock results in a doubling of the spread because of a decrease in bid prices our results provide a benchmark for researchers examining bid ask spreads of securities that include a liquidity premium a risk premium and an asymmetric information premium

the incredible holc mortgage relief during the great depression this paper examines the relief provided by the home owners loan corporation holc a new deal program that purchased and refinanced over 1 million distressed residential mortgages i document that the holc paid relatively high prices for its mortgages most likely in an effort to encourage lender participation and stimulate the housing market the consequence was that lenders were able to remove poorly performing assets from their balance sheets at attractive prices while this meant the holc s ability to seek principal reductions was somewhat limited borrowers still received significant relief through the terms of the holc s more modern and forgiving mortgage contracts

new findings regarding day of the week returns over trading and non trading periods a note this paper decomposes daily close to close returns into trading day and non trading day returns we discover that all of the average negative returns from friday close to monday close documented in the literature for stock market indexes occurs during the non trading period from friday close to monday open in addition average trading day returns open to close are identical for all days of the week january firm size turn of the year anomalies are shown to be interrelated with day of the week returns

seasonality estimation in thin markets the greater availability of daily data in the u s has led to a number of studies of the seasonality of daily stock index returns while the studies recognized the potential impacts of nontrading and price adjustment delays in general no formal analyses of such impacts were presented in this paper analytic results are presented for the articulation between these phenomena the implications of the analysis are discussed and shown to be consistent with a sample of u k index data a modified form of the negative weekend effect is found to be present in the u k data analyzed tests for the presence of seasonality in equity returns have been carried out by a number of authors at both the monthly and daily return levels at the monthly level rozeff and kinney 18 discovered evidence of seasonality in the u s while officer 15 detected the presence of seasonality in australian data fama 7 carried out some early work on u s daily data and more recent contributions have been made by cross 5 french 9 and gibbons and hess 10 while these studies recognized the presence of thin trading and its potential impacts upon the experimental results no formal analyses were presented in this paper we derive analytic results for the articulation between seasonality and nontrading effects section i the implications of this analysis are tested using a sample described in section ii of u k daily index data2 in section iii section iv discusses the implications of the results for capital market efficiency finally

blood and treasure exiting the great depression and lessons for today although avoiding the policy mistakes of the 1930s helped define how policy makers responded to the 2007 8 financial crisis and ensuing recession policy applications to the recovery phase are less well understood we draw on the experience of the us in the 1930s to shed light on exit strategies movements back to institutional conditions associated with steady state growth including stable inflation and broadly non interventionist credit and capital market policies we describe how policy responses to the deflation and banking crises of the 1930s coloured the exit policy debate after the great depression we show that a full exit from the great depression defined as the point at which interventionist credit and capital market policies and institutions were wound down did not occur in the 1930s it took until the 1950s for this to occur and for the federal reserve to regain its independence and return unfettered to its longer run

the puzzling price behavior of treasury bills that mature at the turn of calendar months abstract this paper documents the unusual price behavior of treasury bills that mature at the turn of calendar months there is a kink in the yield curve as it crosses calendar months and this kink is most pronounced as the yield curve crosses between calendar years potential seasonality in the spot rate of interest could not explain these results nor could they be explained by the mispricing of either the last bill or first bill in a month the exceptionally large premium on the first bill in a month tended to be earned throughout the lifetime of the bill

does the weekday effect of the yen dollar spot rates exist in tokyo london and new york an analysis of panel probability distribution using probability distribution techniques this article explores whether any differences exist between the returns and volatility of yen dollar spot markets in tokyo london and new york after the intraday returns were fit into probability distributions new york is found to have the highest return followed by london and then tokyo in estimating the peaks and widths of the distributions of volatility tokyo is found to have the lowest volatility in the log normal distribution while london and new york show similar volatility distributions implying similar investor risk return preference behaviour in the london and new york markets the findings also imply that arbitrage opportunities between london and new york could be trivial after estimating the panel distribution from monday to friday across the three markets we found that the monday effect disappears instead tuesday shows negative and significantly lower returns the friday weekend effect no longer exists instead thursday shows a positi

non aggressive bidding behavior and the winner s curse previous authors have noted a curious result that arises within the context of sealed bid auctions in certain situations it is in the bidder s interest to respond non aggressively to increased competition we consider a decision theoretic formulation of the bidder s problem and derive necessary conditions for the choice of a non aggressive bidding strategy the resulting conditions relate closely to a phenomenon that has been described rather loosely by bidding practitioners as the winner s curse in the course of this paper we develop a specific definition of the winner s curse and demonstrate how it affects the firm s competitive behavior

on the behavioral differences between professional and amateur investors after the weekend abstract this paper compares the trading patterns of amateur and professional investors during the days following the weekend the comparison is based on all the daily transactions of a large sample of both amateurs and professionally managed investors in a major brokerage house in israel from 1994 to 1998 we find that weekends influence both amateurs and professional investors however they affect them in opposite directions individuals increase both their buy and sell activities and their propensity to sell rises more than their propensity to buy professionals on the other hand tend to perform fewer buy as well as sell trades after the weekend but unlike individuals the drop in their activity is almost the same for buy trades and for sell trades the results agree with previous hypotheses raised in the literature which were not directly tested about the effects of the weekend on the predisposition to trade of individuals and institutions in other markets we also find that returns on the israeli stock market index are correlated in general with the behavioral patterns exhibited by the investors in our sample in particular the returns on the days following the weekend are lower than those in other weekdays in a manner consistent with the behavioral patterns we found

the week end effect in common stock returns the international evidence this paper examines the daily stock market returns for four foreign countries we find a so called week end effect in each country in addition the lowest mean returns for the japanese and australian stock markets occur on tuesday the remainder of the paper answers four questions are seasonal patterns in foreign stock markets independent of those previously reported in the u s do japan and australia exhibit a seasonal one day out of phase due to different time zones do settlement procedures across countries bias week end effects does the seasonal pattern in foreign exchange offset the week end effect in stocks for americans investing overseas some of the most anomalous empirical findings in finance are associated with the sample distributions of daily common stock returns cross 1 french 2 gibbons and hess 3 and keim and stambaugh 4 have documented that the average return on friday is abnormally high and the average return on monday is abnormally low to our knowledge this so called day of the week effect or week end effect has yet to be explained because this anomaly has been reported primarily for u s stock returns it is appropriate to investigate whether similar results occur for other countries positive findings would strongly support the proposition that the weekly seasonal effect is a general world wide phenomenon rather than the result of a special type of institutional arrangement in the u s to shed more light on this proposition our paper examines stock market returns in the u k japan canada and australia since we find a week end effect in each country we can examine a set of interesting questions for example are these seasonals independent of the previously reported seasonal in the u s due to different time zones do far eastern countries exhibit a seasonal one day out of phase do different settlement procedures across countries influence weekend effects does the seasonal in foreign exchange fluctuations see mcfarland pettit and sung 7 and levi 6 offset the week end effect in stock market returns for americans investing overseas

a transaction data study of weekly and intradaily patterns in stock returns abstract weekly and intradaily patterns in common stock prices are examined using transaction data for large firms negative monday close to close returns accrue between the friday close and the monday open for smaller firms they accrue primarily during the monday trading day for all firms significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens on monday mornings prices drop while on the other weekday mornings they rise otherwise the pattern of intraday returns is similar on all weekdays most notable is an increase in prices on the last trade of the day

sealed bid versus open auctions the evidence data from u s forest service timber auctions are used to test vickrey s original proposition that sealed bid and open auctions yield equal revenue models for the high bid in an auction are specified and estimated using three different procedures ordinary least squares two stage least squares and maximum likelihood the second two procedures include a second equation which accounts for the forest service s auction choice and therefore control for selection bias these two procedures which unlike ordinary least squares yield consistent estimators imply a statistically and economically insignificant difference in high bids between sealed bid and open auctions

securitization and mortgage renegotiation evidence from the great depression we use loan level data from the nyc metropolitan area to examine the extent to which lenders attempted to prevent foreclosures with concessionary modi cations during the great depression we nd no principal forgiveness in the sample and only a handful of concessionary mortgage modi cations of other types far more mortgages terminated through foreclosure than received any sort of concessionary modi cation the results indicate that there are signi cant impediments to renegotiation of residential mortgages beyond securitization as such less renegotiation seems unlikely to be a major cost of securitization of residential mortgages

weekend effects on stock returns a note some researchers have apparently been surprised to discover that the distribution of stock returns depends on the day of the week kenneth french 3 for example in testing whether daily stock returns are generated by a trading time or calendar time hypothesis provided convincing evidence of a negative market return on mondays as french carefully notes this finding runs counter to both hypotheses since a trading time view would have expected stock returns equal on different days and a calendar time view would have higher expected returns on monday to compensate for the longer holding period in this paper we offer a partial explanation for the apparently puzzling discovery of different daily returns we argue that the expected stock returns as measured for example from closing to closing prices should depend on the day of the week in general we argue that the expected returns on mondays should be lower than would be implied simply by a trading time or calendar time model and the returns on fridays should be higher in addition we anticipate that holidays will have complex effects on stock returns on other days of the week our argument is based on the delay between trading and settlements in stocks and in clearing checks the explanation that we offer for different measured daily returns does not contradict the efficient market hypothesis as correctly adjusted expected returns should not differ according to the day of the week