The Blue Monday Hypothesis: Evidence About and Based on Fama-French Factors

Abstract

This study provides empirical evidence on the Blue Monday hypothesis that a sizeable proportion of investors tend to be inherently pessimistic on Mondays relative to other days and this contributes to the famous Monday effect in stock returns. For the period 1971-2002, returns on most indices that track important segments of the Dow and Nasdaq stocks (Dow: industrial, transportation, and utility; Nasdaq: composite, industrial, bank, insurance, other financial, transportation, telecommunications, utility, biotech, and computers) exhibit a Monday effect. The strength of the Monday effect (Monday return minus the average return on other weekdays) is positively correlated over time between the various segments tracked by the indices. While Rm-Rf, and SMB exhibit a Monday pattern (i.e., Monday returns being lower than some of the other days), HML exhibits a reverse Monday pattern (i.e., Monday returns being higher than some of the other weekdays). This Monday pattern in Fama-French factors, however, does not fully account for the Monday effect in excess returns on various Dow and Nasdaq indices (index return minus Rf) because in the regression of index excess returns against the three Fama-French factors the intercepts and/or the residuals continue to exhibit a Monday pattern. Furthermore, the r-squared values in these regressions are higher on Mondays than on non-Mondays. The study argues that these findings are consistent with the Blue Monday hypothesis.