Another look at the holiday effect

Abstract

This article provides further evidence on the holiday effect by analysing stock market behaviour on the days a public holiday is not accompanied by a stock market break. Indeed, since 2003, when the trading calendar of Portuguese stock market was harmonized with the remaining Euronext national markets, on several occasions Portuguese national holidays were not weekdays on which the stock market was closed. Moreover, we adopted a bottom-up approach that allows us to search for size effects and industry effects. Our results show a statistically significant negative liquidity effect and an economically and statistically significant positive price effect during Portuguese-specific national holidays relative to a typical trading day. Return-related impact effects are driven by the smaller-sized stocks and robust to the recent crisis period. These results suggest the prevalence of a mood effect, by which those nondistracted traders’ positive feelings translate into a buying pressure, or reluctance to sell, that...