Monday blues: Investors sell losses Monday mornings

Investors are consciously or unconsciously influenced by mood during trading.

RMIT University Researcher and Lecturer Dr Daniel Richards together with Associate Professor Dr Gizelle Willows from the University of Cape Town, have developed new research looking into the impact of ‘Monday blues’ on investor psychology and behaviour.

Their latest research investigates the trends wherein stock market investors are more likely to sell losses on Monday mornings.

Richards and Willows suggest that investor susceptibility to bias is reduced when people have time to think through investment decisions. For investors, they are using the weekend and then Monday morning to improve the bad investment decision. 

RMIT researcher Dr Daniel Richards and Dr Gizelle Willows investigated and monitored the days of the week and the time of day that investor’s trade. 

Dr Richards said: “When we analysed 7,200 UK investors trading records, we found a strong tendency to sell losses on a Monday morning but selling of gains occurred throughout the week”.

Research showed that market returns are higher on Fridays than on Mondays. This indicates that investors are consciously or unconsciously influenced by mood which effects when they trade. 

When asked why this might occur Dr Richards suggested two reasons

  • First, selling a loss and Monday mornings both create bad moods, so investors choose to combine these two activities. 

  • Secondly, selling a loss is a harder decision than selling a gain so investors may use the weekend to digest this trading decision.  

Dr Willows said: “If you look at Mondays, individual investors are buying and selling more actively compared to other days in the week. This is different to institutional investors who trade less on Mondays.”  

This means that individual investors are trading in different patterns than institutional investors and is an interesting avenue for future research, such as: do individual investors react in the same way as intuitional when bad news is released about a company?  

The researchers also investigated intraday trading patterns, finding that trading activity followed a W shape.  There is high trading at start, middle and end of the day, coinciding with arrival, breaks and leaving of work.

The research has been published in the Journal of Behavioral and Experimental Finance at https://doi.org/10.1016/j.jbef.2019.02.009

See also: Mondayitis: why traders sell their losses on the worst day of the week

Story: Rekha Ryan

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