zyein University

Finance412

ALPHA Generation Through Weekend Effect in Small

Firms

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Information about the team:

Name ID

Executive Summary

The objective of this paper is to study the changes in excess returns, focusing on weekend

effect also known as Monday effect by looking at the firm size and returns in days of the week. In

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this study, small firms and big firms excess returns in three major stock exchanges in the US;

NASDAQ, NYSE and AMEX is analyzed and compared. Years between 2006 and 2017 has

extensively analyzed and data regressed and tested through famous Single Factor Model derived by

Fama-French and another famous Four Factor Model derived by Fama-French-Carhart. Alpha

generation through different strategies have analyzed with statistical tests and returns on the small

firms on Friday are larger than any other day whereas the returns of small firms on Monday are less

than the other days of the week hypothesis is partially proved.

Even though some of the regressions have failed on statistical tests, passed ones are enough

to prove parts of the hypothesis. More developed and complex econometric regression models such

as GARCH should be applied to better understand the implications. Besides, data years range

should be extended over a period of time where another economic crisis is experienced for better

comparison and in the long run stability of the weekend effect is another research topic. Stability of

the effect would also be modeled and measured with more accuracy with more complex regression

methods.

Results of this study suggests that it is possible to generate the most alpha through investing

in small firm stocks on all three exchanges on Fridays. Significantly weak results also add on to

latter, that the returns on the small firms on Friday are larger than any other day whereas the returns

of small firms on Monday are less than the other days of the week.

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Table of contents
SECTION 1 INTRODUCTION....................................................................................................................................5
SECTION 2 EXPLANATION OF THE STRATEGY.................................................................................................6
2.1 STRATEGY EXPLANATION AND REFERENCES TO THE GUIDE...................................................................................6
2.2 REFERENCE EXPLANATION AND DISCUSSION.........................................................................................................7
2.3 HYPOTHESIS DESCRIPTION......................................................................................................................................8
SECTION 3 DATA..........................................................................................................................................................9
3.1 DATA SOURCES AND SCOPE OF THE USAGE............................................................................................................9
3.2 DATA RESTRICTIONS AND LIMITATIONS..................................................................................................................9
3.3 SCREEENING CRITERIA AND FILTERING..................................................................................................................9
3.4 DATA TRANSFORMATION......................................................................................................................................10
3.5 FINAL NOTES ON THE DATA..................................................................................................................................11
SECTION 4 METHODOLOGY.................................................................................................................................12
4.1 EXPLANATION OF METHODOLOGY.......................................................................................................................12
SECTION 5 TESTING METHODS...........................................................................................................................13
5.1 EXPLANATION OF METHODOLOGY.......................................................................................................................13
SECTION 6 RESULTS................................................................................................................................................14
SECTION 7 LIMITATIONS.......................................................................................................................................20
SECTION 8 CONCLUSIONS AND RECCOMENDATIONS.................................................................................21
SECTION 9 REFERENCES.......................................................................................................................................22

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Section 1 Introduction

There has been a great interest in the stock market among individuals and corporations.

Main reason of this interest is the proven potential to realize great profits from changing stock

prices. As long as one has the right information, many possible ways are present to realize these

profits. The key to success in the stock market is information and in todays changing world

information needs to be implemented fast.

Efficient Market is defined as one in which the prices of securities quickly and fully reflect

all available information about the assets. According to Efficient Market Hypothesis (EMH), prices

of all securities follow a random walk, i.e. unpredictable. Besides market anomalies are in contrast

to the outcome that would have occurred in a totally efficient market. It is always assumed that the

market is efficient, meaning if an arbitrage opportunity exists, it will not be there for a long time, as

the number of participants who knows this opportunity and uses it increases, excess returns from

that opportunity will diminish and eventually it will disappear. Since the beginning of Dow Jones in

1882, many arbitrage opportunities have occurred in the market. In this paper one of the most

famous of that arbitrage opportunities weekend effect or Monday effect will be analysed with

emphasis on small cap firms.

Weekend Effect refers to one of the anomalies that Efficient Market Hypothesis fails to

explain which is about the negative returns between Fridays close and Mondays close and first

introduced by Frank Cross in 1973. In other words, weekend effect refers to the tendency of stocks

to perform relatively large returns on Fridays compared to those on Mondays. In this paper, Friday

returns and Monday returns of two components (small firms and big firms) in three different major

stock indexes (NASDAQ, NYSE, AMEX) will be analysed, compared and tested by using single

factor model, where Beta is the only risk factor and Fama-French-Carhart Four Factor Model. This

paper aims to investigate how weekend effect strategy in small firms affect excess returns compared

with big firms.

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Section 2 Explanation of the strategy and hypothesis

2.1 Explanation of the Strategy and a Reference to the Guide

Weekend effect strategy will be main strategy to be used in the analysis. Instead of looking

at the whole market, excess returns of small firms and big firms will be taken into consideration in

NYSE, NASDAQ and AMEX. Weekend effect first reported by Cross (1973), refers to a situation

where returns on stocks on Monday are significantly different from Friday returns. After the

findings of the Cross (1973), French (1980) has also developed notable results that shows the stock

returns at the end of Mondays are decreasing whereas increasing on Fridays. Among the significant

findings in financial literature and academics, significantly negative returns on Monday is known as

as the Weekend Effect or Monday Effect.

Another anomaly noted in financial literature is firm size effect, which refers to higher

excess returns of small firm stocks than big firm stocks in terms of their market capitalizations. Not

many academics have compared firm size with weekend effect. One of the researches on the field

suggests that The smaller the firm the greater is the tendency for average returns to be high on

Friday (Keim and Stambaugh, 1984).

Furthermore, stability of the weekend effect has been a topic discussed in several finance

literatures, many of them suggests that the weekend effect disappears for certain periods and then

reappears for others. Several other academics have researched weekend effect after financial crisis

and the evidence has found by Hui(2004) that the weekend effect was actually present after 2001

crisis.

This paper takes the article The Evolution of the Weekend Effect in US Markets written by

Dennis Olson, Charles Mossman, Nan-Thing Chou in 2015 and published in The Quarterly Review

of Economics and Finance 58(2015) pages 56-63. Main topic of the article is how weekend effect

changed in US Markets in different time periods.

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2.2 Reference Explanation

This paper explains the evolution of the weekend effect in US Markets by classifying it as

wandering and disappearing weekend effect. Reference paper hypothesize that the weekend effect,

like any stock market anomaly, eventually disappears in the long run. Olson suggests that an

anomaly such as weekend effect may continue to wander without grinding to a halt and eventually

disappearing in the long run (Olson,1).

Two properties of the daily return series of US Stock Market Indexes is analysed. First one is

to test if the weekend effect declines and initially disappears soon after its discovery, whereas the

second and more important one is to test whether the Monday return differential relative to other

days of the week declines over time and moves toward zero (Olson,1).

Reference paper uses data from seven daily US Stock Market Index between years 1973-

2013. Among these indexes, mid-cap, small-cap and high-cap indexes are represented as well, since

it is related with this paper it is notable to indicate the index features according to capitalizations.

Chow Breakpoint Test, Bai-Perron Test, Unit Root Test, Dickey-Fuller Test and KPSS Tests

are used to examine the stability of the Weekend Effect.

Reference paper concludes that the weekend effect immediately declined in importance after

first introduced in 1973 and initially disappeared, then it reappeared and disappeared again. After

performing several tests, Olson concluded that in the very long run excess returns from weekend

effect are diminishing and there is a recursive cycle in which it appears and disappears depending

on economic situation.

This paper will be focusing more on the firm size relationship with day of the week effect

rather than the stability of the weekend effect. Data and references in the reference paper will be

used in understanding and developing the concept and construction of hypotheses.

Data and methodology in the reference paper will be taken as a starting point and will also

be used to understand the concept better.

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2.3 Hypothesis Description

This paper aims to prove that the alpha generation through weekend effect depends on the

day of the week and firm size and hypothesize that the returns on the small firms on Friday are

larger than any other day whereas the returns of small firms on Monday are less than the other days

of the week. Based on this hypothesis statistical regression tests will be performed through using

Single Factor Model and Fama-French-Carhart Four Factor Model.

Main economic background and explanation in this hypothesis lies in the behavioural

finance topic. Several finance literatures, research analysts, fund managers and bankers argue that

individual investors are more active in trading small cap stocks, and the behaviour of individual

investors plays an active role in the construction of the weekend effect. So this paper believes that

as individual investors trade more small cap stocks and as they are the real representatives of the

weekend effect among other participants, returns on the small firms on Friday are larger than any

other day whereas the returns of small firms on Monday are less than the other days of the week.

For further analysis, daily trading behaviour of individual investors can be analysed. Many

academics believe that individual investors are tend to buy stocks on Fridays as the end of the week

and sell them on Monday after the effect of bad news over the weekend which leads to an abnormal

stock price movement. Short selling might also be affecting alpha generation through this strategy

in both small and big firms and it is proven that individual investor behaviour is effected by short

positions much more than long positions.

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Section 3 Data

3.1 Data sources and scope of the usage

The daily information for the returns of the small and big firms in AMEX, NASDAQ and

NYSE were obtained from CRSP in WRDS (Wharton Research Data Services) system. Small and

big firm classification was already applied with CRSP explanations. Data consists of 2518 days of

returns in all three stock exchanges. In order to use Fama-French-Carhart Four Factor Model; SMB,

HML and UMD data is also obtained from WRDS which refers to Ken French Website for the same

2518 days. This study uses data extracted over a 10-year period starting January 3,2007 through

December 30, 2016.

These data have chosen to conduct the study where daily returns of small and big firms will

be compared through Fama-French Single Factor and Fama-French-Carhart Four Factor Models. In

order to do the analysis of descriptive statistics, t-test and regression, all data is needed in daily

formats, especially focusing on Mondays and Fridays. All of data will be used in this research.

3.2 Data restrictions and limitations

There is not any data restrictions and limitations have experienced during the data research

of the study. The data desired would be the regressions of the returns between small firms and big

firms in three different stock exchanges, which might be used to better understand the implications

of firm size in the weekend effect.

Besides data and applications for several econometric models i.e. GARCH, EGARCH, GJR

would be useful to better implement regressions on the data and understand conditional and

unconditional variances for SMB, HML and UMD parameters.

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3.3 Screening Criteria and Filtering

At first, data has separated by days of the week. By doing that it was easier to calculate mean

and standard deviation of returns by day. Then all data has filtered by days and descriptive statistics

for each day has calculated for each index separately. This has done for all of the data including

SML, HMB, Rf and UMD data as well.

3.4 Data Transformation

As stated in previous sections, this project requires an extensive data work. In order to work

descriptive statistics, MS Excel data analyser has used. After cleansing of data and separation by

days, data has filtered through days and separated to different spreadsheets for better analysis.

Weekday function of excel has used to understand the days of the week in given dates, this function

takes Sunday as the first day of the week. Several if clauses have used to determine the day of the

week from the weekday function. These formulas have used to filter the data.

In order to perform Fama-French-Carhart Four Factor Model regression over the small firm

big firm data; Four Factor Model data has also separated by days with the same formulas

aforementioned applied. All three stock exchanges daily data is then combined with the daily data

of the Four Factor.

For the single factor analysis, it is necessary to have daily information of returns of small

and big firms, market and risk free rate on given day. So data is constructed in that way to easily

calculate average Betas. Basic CAPM formula has used to calculate these Betas of stocks, which is

ra = rrf + Ba (rm-rrf) where rrf is the risk free rate, rm is the market return, ra is the stocks return and Ba

is stocks beta. Then for the regression, MS Excel data analysis regression tool will be used to better

develop the relationship between returns of small and big firms in different days of the week.

For the Four Factor Model, MS Excel data analysis tab is used to perform multiple

regression. Several regressions will be performed for the average small and big firm returns and for

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individual stock exchange small and big firm returns. For this model the formula is given as the

following; E(R) = Rf + 3(Km Rf) + bsmb * SMB + bhml * HML

Where: E(R) = Expected return on assets Rf = Risk-free rate

3 = Beta of the assets

Km = Return of the stock market

bsmb = Coefficient SMB

SMB = Small(cap) Minus Big

bhml = Coefficient HML

HML = High(book/price) Minus Low

Based on the daily data of returns these values are derived and regression analysis will be

performed through MS Excel Data analysis multiple regression tool

3.5 Final Notes on Data

Our Final Sample Size consists of 2518 days of information about the returns of small firms,

big firms, and four factors (SMB, HML, Market Risk Premium, UMD) of Fama-French-Carhart.

Breaking down it to days of the week, 474 data observations are available for each day of the week

excluding weekend and the days that the market is closed. It will be easy to perform regression

analysis on the daily basis since at the end of the extensive data work, all days represented with

each other together, with different days in different tabs of the same workbook. So that it is quick

and convenient to perform regression through both one factor and four factor models.

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Section 4 Methodology

4.1 Methodology Explanation

Data analysis consists mainly from descriptive statistics and regression tests. For the

descriptive statistics part, descriptive statistics tests ran for both small and big firms. Mean,

Standard Error, Standard Deviation, Mode, Median, Sample Variance, Kurtosis, Skewness, Range,

Minimum, Maximum values, Sum and Sample Size has calculated through Data analysis

descriptive statistics tool in MS Excel. After extensive analysis for each part, results have obtained

for every day and consolidated for better and convenient analysis. For the results part, notable

components such as mean, standard deviation, significance and sample size has analysed and

combined in a single table.

For the second part to analyse Four Factor Model and Single Factor Model, MS Excel

Regression tool is used. Market risk premium is calculated by Market Return-Risk Free Rate

formula in order to use it for Beta regression. SML, HMB and UMD calculations are mentioned

above. As data is separated for each day, daily multiple regressions of SML, HMB, UMD and

Market Risk Premium has performed for the average of the small firms and average of the big

firms. Average concept here refers to the average of NASDAQ, NYSE and AMEX stock exchanges

returns. For more convenient analysis, average value of these three exchanges has calculated and

regressions has performed over that data.

In these regressions ANOVA which is the second part of regression results is not significant

so they are not taken into consideration. Major parts checked are the first part and third part of the

regression including intercept data which is actually is what this paper is about, namely ALPHA.

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 Alpha which is intercept in results, is analysed in different type of regressions. Several

regressions are performed, raw data is regressed through average small firm and big firm returns of

the three stock exchanges then each days data has regressed in its own and all of the results are

compared with each other. For more detailed analysis, Monday data and Friday data has analysed

extensively. General regression over Four Factor Model shows that the alpha generation through

small firms is actually negative, whereas Big Firms are slightly positive.

Single Factor Model is used to analyse deeply the return relationship between Monday and

Friday through alpha generation. Results will be explained in results section. Since Four Factor

Model is more developed and structured, it is better to interpret results through that but Single

Factor Model will also act as a fortiori analysis.

Section 5 Testing Methods

5.1 Fama-French-Carhart Four Factor Model and Single Factor Model

As mentioned above and as required for the project Fama-French-Carhart Four Factor Model

and Single Factor Model is used for alpha computation and for testing methods MS Excel

regression tools is used. Coefficients, Standard Error, t-Stat, p-Value of the results are analyzed to

ensure that the test is a reliable one.

According to these tests all regressions of Four Factor Model with big firms are quite

reliable as R-square values of all of them more than 99%. However, in Small Firms, R-square

values are around 60%, which is also indicates the reliability but it would be better to have higher

R-square values.

Single Factor Model regression shows significance in Monday but the significance level is

quite low for Fridays. However another regression methods and data validations will not be in the

scope of this paper

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Section 6 Results

6.1 Descriptive Statistics Results

NASDAQ NYSE AMEX

Small Firms Big Firms Difference Small Firms Big Firms Difference Small Firms Big Firms Difference
Monday
Mean(%) -0,0580 -0,0003 -0,0578 -0,0230 -0,0424 0,0194 -0,0428 -0,0401 -0,0027
Std. Dev 1,2% 1,5% -0,3% 1,4% 1,5% -0,1% 1,0% 1,5% -0,5%
N 474 474 474 474 474 474
Tuesday
Mean(%) 0,0145 0,1385 -0,1240 0,0649 0,1023 -0,0374 0,0163 0,1097 -0,0934
Std. Dev 1,0% 1,5% -0,5% 1,1% 1,4% -0,3% 0,9% 1,4% -0,5%
N 474 474 474 474 474 474
Wednesday
Mean(%) 0,0001 0,0006 -0,0005 0,0408 0,0148 0,0260 0,0214 0,0246 -0,0032
Std. Dev 1,0% 1,4% -0,4% 1,0% 1,3% -0,2% 0,8% 1,3% -0,5%
N 474 474 474 474 474 474
Thursday
Mean(%) 0,0002 0,0005 -0,0003 0,0347 0,0346 0,0001 0,0430 0,0359 0,0071
Std. Dev 1,0% 1,4% -0,4% 1,2% 1,4% -0,2% 0,9% 1,4% -0,4%
N 474 474 474 474 474 474
Friday
Mean(%) 0,0007 0,0002 0,0005 0,0011 0,0002 0,0009 0,1166 0,0265 0,0900
Std. Dev 1,0% 1,2% -0,3% 1,0% 1,1% -0,1% 0,8% 1,1% -0,3%
N 474 474 474 474 474 474

Table1: Descriptive Statistics

As expected Monday mean returns are negative in all three US Stock Exchanges. Friday

returns being largest is the case for AMEX but not for NASDAQ and NYSE. Comparing small

firms and big firms it can be said that small firms have higher returns on Fridays than big firms and

higher negative returns on Mondays.

SUMMARY OUTPUT Small Firm

Regression Statistics
Multiple R 0,743
R Square 0,552
Adjusted R Square 0,548
Standard Error 0,006
Observations 474
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha -0,0007 0,0003 -2,5453 0,0112 -0,0013 -0,0002 -0,0013 -0,0002
Beta for SMB 0,0165 0,0426 0,3873 0,6987 -0,0672 0,1002 -0,0672 0,1002
Beta for HML 0,0389 0,0480 0,8114 0,4175 -0,0553 0,1331 -0,0553 0,1331
Beta for Market Portfolio
0,4125 0,0193 21,3823 0,0000 0,3746 0,4504 0,3746 0,4504
Beta for UMD 0,0568 0,0367 1,5470 0,1225 -0,0154 0,1290 -0,0154 0,1290

Table 2: Basic Regression for Four Factor Model Small Firms

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 SUMMARY OUTPUT Big Firm
RegressionStatistics
Multiple R 0,997
R Square 0,994
Adjusted R Square 0,994
Standard Error 0,001
Observations 474
per 95,0% Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 0,0003 0,0001 4,8748 0,0000 0,0002 0,0004 0,0002 0,0004
Beta for SMB -0,0690 0,0093 -7,4161 0,0000 -0,0873 -0,0507 -0,0873 -0,0507
Beta for HML -0,0965 0,0105 -9,2219 0,0000 -0,1171 -0,0760 -0,1171 -0,0760
Beta for Market Portfolio
1,0267 0,0042 243,8261 0,0000 1,0184 1,0350 1,0184 1,0350
Beta for UMD 0,0007 0,0080 0,0873 0,9305 -0,0151 0,0165 -0,0151 0,0165

Table 3: Basic Regression for Four Factor Model Big Firms

As Table 2 and 3 proves, basic regression over Four Factor Model has run through average

Small Firms and Big Firms in NASDAQ, NYSE and AMEX Stock Exchanges. Small Firms are

eroding alpha whereas big firms are generating alpha. T-Stat and P-Values are in safe levels that

ensures the reliability of the regression.

SUMMARYOUTPUT MondaySmall SingleFactor

Regression Statistics
Multiple R 0,77822978
R Square 0,60564159
Adjusted R Square 0,60480608
Standard Error 0,00707089
Observations 474

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha -0,00013902 0,000325 -0,427853 0,668954 -0,000778 0,000499 -0,000778 0,000499
Market Risk Premium 0,58858599 0,021861 26,92361 2,01E-97 0,545628 0,631544 0,545628 0,631544

SUMMARYOUTPUT FridaySmall SingleFactor

Regression Statistics
Multiple R 0,27894113
R Square 0,07780816
Adjusted R Square 0,07585436
Standard Error 0,00801695
Observations 474

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 0,00085735 0,000369 2,325537 0,020466 0,000133 0,001582 0,000133 0,001582
Market Risk Premium -0,26657749 0,042243 -6,310633 6,41E-10 -0,349584 -0,183571 -0,349584 -0,183571

Table 4: Single Factor Regression Small Firm, Monday and Friday Compared

Table 4 suggests that according to Single Factor Regression Model Small Firms generate

alpha on Fridays where they destroy alpha on Mondays. T stat and P values are in safe ranges that

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 ensures the reliability of the regression.

SUMMARYOUTPUT MondayBigSingleFactor

Regression Statistics
Multiple R 0,997288
R Square 0,994582
Adjusted R Square 0,994571
Standard Error 0,001091
Observations 474

Upper 95,0% Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 9,19E-05 5,01E-05 1,833516 0,067355 -6,59E-06 0,00019 -6,59E-06 0,00019
Market Risk Premium 0,992857 0,003373 294,3668 0 0,98623 0,999485 0,98623 0,999485

SUMMARYOUTPUT FridayBigSingleFactor

Regression Statistics
Multiple R 0,226811
R Square 0,051443
Adjusted R Square 0,049433
Standard Error 0,011009
Observations 474

Upper 95,0% Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 9,55E-05 0,000506 0,188582 0,850502 -0,000899 0,00109 -0,000899 0,00109
Market Risk Premium -0,293498 0,05801 -5,059447 6,03E-07 -0,407488 -0,179508 -0,407488 -0,179508

Table 5: Single Factor Regression Big Firm, Monday and Friday compared

According to Table 5, there is no significant difference in alpha generation for Big Firms

based on day of the week effect. However, t Stat and P Value intervals are not in the direction to

support these arguments so more developed regression models such as GARCH, might be used to

better understand this relationship.

Table 6 and 7 below is the representation of the daily regression of small firm and big firm

values through using Four Factor Model. Based on the results, it can be said that the most alpha is

generated in Friday with small firms whereas the most alpha destroyed is not Monday small firm

but Tuesday small firm. T-stat and p-values of the regression varies according to days however,

Monday regression and Friday regression is in a safe interval. So we can rely on the validity of the

regression.

These results prove hypothesis of this study partially. This paper hypothesis that the returns

on the small firms on Friday are larger than any other day whereas the returns of small firms on

Monday are less than the other days of the week.

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 According to Four Factor Model regression for all days of the week, small firms generate the

most alpha on Fridays, which proves the first part of the hypothesis where for the Monday part

single factor model is supportive but Four Factor Model rejects the hypothesis.

However, looking at the statistical reliability values, some of the regressions might not be

enough to reject the hypothesis. So, more developed and complex regression models should be

applied to better understand the relationship between the day of the week effect and firm size.

Since US stock indexes experience a dramatic turmoil in 2008 Financial Crisis, data might

be biased in a way that it supports the hypothesis or not. So it will be more appropriate the compare

these results with another economic turmoil time period and an extended time period which include

both recession and strong economic terms.

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SUMMARYOUTPUT MondayAverageSmall Firm

Regression Statistics Regressio

Multiple R 0,804022
R Square 0,646451
Adjusted R Square 0,643436
Standard Error 0,006716
Observations 474

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 6,8E-05 0,00031143 0,218311 0,827281 -0,000544 0,00068 -0,000544 0,00068
Beta for SMB 0,315536 0,05195343 6,073435 2,59E-09 0,213445 0,417626 0,213445 0,417626
Beta for HML -0,103777 0,05501896 -1,886211 0,059884 -0,211892 0,004337 -0,211892 0,004337
Beta for UMD -0,148779 0,03470853 -4,286531 2,2E-05 -0,216983 -0,080576 -0,216983 -0,080576
Beta for Market Portfolio 0,542851 0,02503431 21,6843 9,83E-73 0,493658 0,592045 0,493658 0,592045

SUMMARYOUTPUT TuesdayAverageSmall Firm

Regression Statistics Regressio

Multiple R 0,733762
R Square 0,538406
Adjusted R Square 0,53447
Standard Error 0,006076
Observations 474

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha -0,000161 0,00028001 -0,57554 0,565202 -0,000711 0,000389 -0,000711 0,000389
Beta for SMB 0,317806 0,04446842 7,146785 3,42E-12 0,230424 0,405188 0,230424 0,405188
Beta for HML 0,146654 0,04975344 2,947624 0,003362 0,048887 0,244422 0,048887 0,244422
Beta for UMD 0,377311 0,02331908 16,18035 4,13E-47 0,331488 0,423134 0,331488 0,423134
Beta for Market Portfolio -0,056286 0,03401625 -1,654674 0,09866 -0,123129 0,010557 -0,123129 0,010557

SUMMARYOUTPUT WednesdayAverageSmall Firm

Regression Statistics Regressio

Multiple R 0,795162
R Square 0,632282
Adjusted R Square 0,629146
Standard Error 0,005381
Observations 474

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 0,000201 0,00024732 0,810805 0,417889 -0,000285 0,000687 -0,000285 0,000687
Beta for SMB 0,335341 0,04513634 7,429515 5,2E-13 0,246647 0,424036 0,246647 0,424036
Beta for HML 0,228638 0,04610617 4,958941 9,92E-07 0,138038 0,319238 0,138038 0,319238
Beta for UMD 0,420981 0,02165275 19,44238 3,47E-62 0,378432 0,463529 0,378432 0,463529
Beta for Market Portfolio -0,025703 0,03029903 -0,848306 0,3967 -0,085242 0,033836 -0,085242 0,033836

SUMMARYOUTPUT ThursdayAvgSmall Firm

Regression Statistics Regressio

Multiple R 0,815959
R Square 0,665788
Adjusted R Square 0,662938
Standard Error 0,005589
Observations 474

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 7,68E-05 0,00025762 0,2982 0,765682 -0,000429 0,000583 -0,000429 0,000583
Beta for SMB 0,137452 0,04746137 2,896091 0,003955 0,044189 0,230716 0,044189 0,230716
Beta for HML 0,10762 0,04743251 2,268906 0,023728 0,014413 0,200826 0,014413 0,200826
Beta for UMD 0,514007 0,02156896 23,83086 7,85E-83 0,471623 0,556391 0,471623 0,556391
Beta for Market Portfolio -0,023907 0,03041252 -0,786081 0,432217 -0,083668 0,035855 -0,083668 0,035855

SUMMARYOUTPUT FridayAvgSmall Firm

Regression Statistics Regressio

Multiple R 0,672427
R Square 0,452158
Adjusted R Square 0,447486
Standard Error 0,006199
Observations 474

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 0,000794 0,00028605 2,777451 0,005698 0,000232 0,001357 0,000232 0,001357
Beta for SMB 0,058615 0,04880587 1,200975 0,230367 -0,037291 0,15452 -0,037291 0,15452
Beta for HML 0,027173 0,0531048 0,511693 0,609107 -0,077179 0,131526 -0,077179 0,131526
Beta for UMD 0,458078 0,02690843 17,02358 5,94E-51 0,405202 0,510954 0,405202 0,510954
Beta for Market Portfolio -0,110105 0,03704102 -2,972508 0,003106 -0,182892 -0,037318 -0,182892 -0,037318

Page 18 of 22
 Table 6: Four Factor Regression Small Firm, all days

SUMMARYOUTPUT MondayAverageBigFirm

Regression Statistics
Multiple R 0,998256
R Square 0,996515
Adjusted R Square
0,996485
Standard Error 0,000878
Observations 474

Upper 95,0% Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 4,72E-05 4,07E-05 1,158891 0,24709 -3,28E-05 0,000127 -3,28E-05 0,000127
Beta for SMB -0,091364 0,00679 -13,45616 3,91E-35 -0,104706 -0,078022 -0,104706 -0,078022
Beta for HML -0,073576 0,00719 -10,23262 2,56E-22 -0,087705 -0,059447 -0,087705 -0,059447
Beta for UMD -0,006038 0,004536 -1,331054 0,183818 -0,014951 0,002876 -0,014951 0,002876
Beta for Market1,010627
Portfolio 0,003272 308,8997 0 1,004198 1,017056 1,004198 1,017056

SUMMARYOUTPUT TuesdayAverageBigFirm

Regression Statistics
Multiple R 0,997711
R Square 0,995427
Adjusted R Square
0,995388
Standard Error 0,000961
Observations 474

Upper 95,0% Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 6,78E-05 4,43E-05 1,530818 0,126489 -1,92E-05 0,000155 -1,92E-05 0,000155
Beta for SMB -0,099668 0,007031 -14,17608 3,21E-38 -0,113483 -0,085852 -0,113483 -0,085852
Beta for HML -0,086936 0,007866 -11,05173 2,16E-25 -0,102394 -0,071479 -0,102394 -0,071479
Beta for UMD 1,030151 0,003687 279,4106 0 1,022907 1,037396 1,022907 1,037396
Beta for Market
-0,005501
Portfolio 0,005378 -1,022893 0,306886 -0,01607 0,005067 -0,01607 0,005067

SUMMARYOUTPUT WednesdayAvgBigFirm

Regression Statistics
Multiple R 0,997533
R Square 0,995073
Adjusted R Square
0,995031
Standard Error 0,000927
Observations 474

Upper 95,0% Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 0,000164 4,26E-05 3,850284 0,000134 8,04E-05 0,000248 8,04E-05 0,000248
Beta for SMB -0,088394 0,00778 -11,36173 1,36E-26 -0,103682 -0,073106 -0,103682 -0,073106
Beta for HML -0,083505 0,007947 -10,50746 2,47E-23 -0,099121 -0,067888 -0,099121 -0,067888
Beta for UMD 1,019751 0,003732 273,2292 0 1,012418 1,027085 1,012418 1,027085
Beta for Market
-0,001236
Portfolio 0,005223 -0,236672 0,813015 -0,011499 0,009026 -0,011499 0,009026

SUMMARYOUTPUT ThursdayAvgBigFirm

Regression Statistics
Multiple R 0,997359
R Square 0,994724
Adjusted R Square
0,994679
Standard Error 0,000999
Observations 474

Upper 95,0% Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha 4,12E-05 4,6E-05 0,894281 0,37163 -4,93E-05 0,000132 -4,93E-05 0,000132
Beta for SMB -0,073384 0,008479 -8,654547 7,97E-17 -0,090046 -0,056722 -0,090046 -0,056722
Beta for HML -0,081433 0,008474 -9,609659 4,46E-20 -0,098085 -0,064781 -0,098085 -0,064781
Beta for UMD 1,004445 0,003853 260,6634 0 0,996873 1,012017 0,996873 1,012017
Beta for Market
-0,008925
Portfolio 0,005433 -1,642685 0,101118 -0,019602 0,001751 -0,019602 0,001751

SUMMARYOUTPUT FridayAvgBigFirm

Regression Statistics
Multiple R 0,996403
R Square 0,992819
Adjusted R Square
0,992758
Standard Error 0,000961
Observations 474

Upper 95,0% Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%
Alpha -3,82E-05 4,43E-05 -0,861236 0,389548 -0,000125 4,89E-05 -0,000125 4,89E-05
Beta for SMB -0,078415 0,007566 -10,36431 8,39E-23 -0,093282 -0,063547 -0,093282 -0,063547
Beta for HML -0,094043 0,008232 -11,42371 7,8E-27 -0,110219 -0,077866 -0,110219 -0,077866
Beta for UMD 1,017301 0,004171 243,8803 0 1,009104 1,025498 1,009104 1,025498
Beta for Market0,011402
Portfolio 0,005742 1,98565 0,047654 0,000118 0,022685 0,000118 0,022685

Page 19 of 22
Table 7: Four Factor regression Big Firm, all days

Section 7 Limitations
7.1 Limitations in the Analysis

As regressions performed in MS Excel data analysis tool, more developed regression tools

did not used, so the results will be more accurate with these regression methods.

There is a financial crisis happened between the selected years so the real effect of this crisis

on the data and hypothesis is another limitation that needs to be tested

Even though these limitations, results are partially corrected the constructed hypothesis and

weekend effect hypothesis is corrected once again.

As mentioned above several different regression methods might be used to make results

more convincing and accurate such as ARCH, GARCH, GFY etc.

Section 8 Conclusions and Recommendations

As regressions performed for all of the cases, this study concludes that based on the results,

most alpha is generated in Friday with small firms whereas the most alpha destroyed is not Monday

small firm but Tuesday small firm. T-stat and p-values of the regression supporting this argument

varies according to days however, Monday regression and Friday regression is in a safe interval. So

we can rely on the validity of the regression.

These results prove hypothesis of this study partially. This paper hypothesis that the returns

on the small firms on Friday are larger than any other day whereas the returns of small firms on

Monday are less than the other days of the week. Results of these regressions suggest that the

returns on the small firms on Friday generate the most alpha. Single factor model proves this

hypothesis completely but statistic tests do not indicate full validation of the regression.

Page 20 of 22
 After extensive study and work this paper recommend stock market participants that

transactions of small cap firms on Fridays generate the highest alpha. If an investor whether an

individual or corporate one wants to generate alpha by using weekend effect strategy, it is better and

safer to invest in small cap firms rather than big cap firms.

Moreover, if an investor wants to generate alpha through investing in small cap firms, it

would be the highest interest of him to trade on Fridays rather than any other day of the week.

Single Factor Model regression which does not have enough significance suggests short selling

small firms on Mondays is also generates a good alpha but Four Factor Models significance and

reliability is higher so applying the former strategy will be safer.

Page 21 of 22
Section 9 References

Olson, Dennis, Charles Mossman, and Nan-Ting Chou. "The Evolution of the Weekend Effect in

US Markets." The Quarterly Review of Economics and Finance 58 (2015): 56-63. Web.

Yeung, Wing Him. "Is the Weekend Effect Really a Weekend Effect?" International Journal of

Economics and Finance 7.9 (2015): n. pag. Web.

lk, Numan. "Monday Effect in Fama-Frenchs RMW Factor." Economics Letters 150 (2017): 44-

47. Web.

Chatterjee, Swarn. "Day of the Week Effect in US Biotechnology Stocks." University of Georgia,

Athens (n.d.): n. pag. Web.

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