Another look at the holiday effect

Abstract

This paper provides further evidence on the holiday effect by analyzing stock market behavior during on the days a public holiday isn’t accompanied by a stock market break. Indeed, beginning in 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 adopt a bottom up approach that allows us to further investigate the holiday effect at the industry level. Our results show a statistically significant liquidity effect and an economically and statistically significant price effect. On average, relative volume decreases 32%, close to close returns are 31% higher and volatility is 37% lower during Portuguese specific national holidays then during a typical trading day. These results suggest the prevalence of a mood effect, by which those non-distracted traders’ positive feelings translate into a selling pressure that drives up prices during country-specific holidays.