I thank Gerald Gay (the editor), an anonymous referee, Pasquale Della Corte, Lucio Sarno, and Alex Stremme for helpful comments.
THE ECONOMIC GAINS OF TRADING STOCKS AROUND HOLIDAYS
Article first published online: 18 MAR 2010
© 2010 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 33, Issue 1, pages 1–26, Spring 2010
How to Cite
Tsiakas, I. (2010), THE ECONOMIC GAINS OF TRADING STOCKS AROUND HOLIDAYS. Journal of Financial Research, 33: 1–26. doi: 10.1111/j.1475-6803.2009.01260.x
- Issue published online: 18 MAR 2010
- Article first published online: 18 MAR 2010
I assess the economic gains of strategies that account for the effect of holiday calendar effects on the daily returns and volatility of the 30 stocks in the Dow Jones Industrial Average index. The dynamic strategies use forecasts from stochastic volatility models that distinguish between regular trading days and different types of holidays. More important, I assess the economic value of conditioning on holiday effects and find that a risk-averse investor will pay a high performance fee to switch from a dynamic portfolio strategy that does not account for the effect of holidays on daily conditional expected returns and volatility to a strategy that does. This result is robust to reasonable transaction costs.