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Monday Effect: Trading Patterns of Individual Investors Walden University ScholarWorks Walden Dissertations and Doctoral Studies Walden Dissertations and Doctoral Studies Collection 2021 Monday Effect: Trading Patterns of Individual Investors Muraleedharan Gopinathan Walden University Follow this and additional works at: https://scholarworks.waldenu.edu/dissertations Part of the Finance and Financial Management Commons This Dissertation is brought to you for free and open access by the Walden Dissertations and Doctoral Studies Collection at ScholarWorks. It has been accepted for inclusion in Walden Dissertations and Doctoral Studies by an authorized administrator of ScholarWorks. For more information, please contact [email protected]. Walden University College of Management and Technology This is to certify that the doctoral dissertation by Muraleedharan Gopinathan has been found to be complete and satisfactory in all respects, and that any and all revisions required by the review committee have been made. Review Committee Dr. Holly Rick, Committee Chairperson, Management Faculty Dr. Aridaman Jain, Committee Member, Management Faculty Dr. David Bouvin, University Reviewer, Management Faculty Chief Academic Officer and Provost Sue Subocz, Ph.D. Walden University 2021 Abstract Monday Effect: Trading Patterns of Individual Investors by Muraleedharan Gopinathan MS, Massachusetts Institute of Technology, 2003 MBA, Rensselaer Polytechnic Institute, 1987 MS, Tuskegee University, 1978 BS, Mysore University, 1975 Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Management Walden University August 2021 Abstract The efficient market hypothesis (EMH) has served as the central theory in modern finance for more than half a century. The Monday effect, in which returns and trading volumes on Mondays are generally lower than other days of the week, is one of the anomalies of the EMH. Researchers postulated the different investment patterns of individual investors as an explanation for the Monday effect. The purpose of this comparative study is to examine the role of individual investors on the Monday effect in the United States stock market. This study involved using actual individual investor data from the New York Stock Exchange from May 2006 to April 2016. The study design is based on a non-experimental, quantitative, and comparative design and builds upon Fama’s EMH theory. The focus is to compare investors’ average daily returns, individual investor average daily trade percentages, and trading patterns on Monday with other weekdays. Using results from one-way ANOVA, study results demonstrated day of the week was not a factor in terms of average daily returns and individual investor daily trade percentages on Monday did not significantly differ from those on Tuesday, Wednesday, and Thursday. However, the percentage of individual investor trades on Fridays was significantly lower than individual investor trades on other weekdays. Days of the week had no effect on individual investor trading patterns. Results of this study may lead to positive social change by understanding individual investor trading behaviors, reducing information asymmetry, and increasing stock market liquidity. Monday Effect: Trading Patterns of Individual Investors by Muraleedharan Gopinathan MS, Massachusetts Institute of Technology, 2003 MBA, Rensselaer Polytechnic Institute, 1987 MS, Tuskegee University, 1978 BS, Mysore University, 1975 Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Management Walden University August 2021 Dedication I dedicate this dissertation to my mother Ponnamma Gopinathan. She has been an inspiration throughout my academic pursuits. She has inspired two generations of men and women in our family and circle of friends to pursue their dreams through her constant support, encouragement, and nudging. Acknowledgments I would like to thank Dr. Holly Rick for her guidance, support, and encouragement through the dissertation process. I also want to thank Dr. Aridaman Jain and Dr. David Bouvin for their insight, advice, and encouragement. Their feedback and suggestions helped to shape this dissertation. I also want to thank my family and friends who stood by me, believed in me, and supported me throughout my doctoral journey. Table of Contents Table of Contents ......................................................................................................................................................... i List of Tables .............................................................................................................................................................. iv List of Figures ............................................................................................................................................................. v Chapter 1: Introduction to the Study ................................................................................................................ 1 Background of the Study ................................................................................................................................ 2 Problem Statement........................................................................................................................................... 4 Purpose of the Study........................................................................................................................................ 5 Research Questions and Hypotheses ........................................................................................................ 5 Theoretical Foundation .................................................................................................................................. 6 Nature of the Study .......................................................................................................................................... 7 Definitions ............................................................................................................................................................ 8 Assumptions ....................................................................................................................................................... 9 Scope and Delimitations ................................................................................................................................ 9 Limitations ........................................................................................................................................................ 10 Significance of the Study ............................................................................................................................. 11 Significance to Theory .......................................................................................................................... 11 Significance to Practice ........................................................................................................................ 12 i Significance to Social Change ............................................................................................................ 13 Summary and Transition ............................................................................................................................ 13 Chapter 2: Literature Review ........................................................................................................................... 15 Literature Search Strategy ......................................................................................................................... 16 Theoretical Foundation ............................................................................................................................... 17 Literature Review .......................................................................................................................................... 17 Market Anomalies .......................................................................................................................................... 19 Summary and Conclusions ......................................................................................................................... 43 Chapter 3: Research Method ............................................................................................................................. 45 Research Design and Rationale ................................................................................................................ 45 Methodology .................................................................................................................................................... 46 Population ................................................................................................................................................. 47 Archival Data............................................................................................................................................ 47 Data Analysis Plan ......................................................................................................................................... 49 Threats to Validity ......................................................................................................................................... 51 External Validity ..................................................................................................................................... 52 Internal Validity .....................................................................................................................................
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