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Keywords:

  • Efficient market hypothesis;
  • Seasonal effects;
  • Behavioural Finance
  • G14;
  • G10

Abstract

This paper presents evidence of the existence of a return effect on European stock markets coinciding with New York Stock Exchange (NYSE) holidays, which is particularly marked after positive closing returns on the NYSE the previous day. The effect is large enough to be exploited by trading index futures. This anomaly cannot be explained by seasonal effects, such as the day of the week effect, the January effect or the pre-holiday effect, nor is it consistent with behavioural finance models that predict positive correlation between trading volume and returns. However, examination of factors such as information volume or investor mix provides a reasonable explanation.