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

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

Investors are more likely to sell their stock market losses on Monday mornings, despite it generally being the worst time to sell, according to new research.

The major survey of 7,200 UK retail investors looked at days of the week and times of day investors were mostly likely to trade, with results just published in the Journal of Behavioral and Experimental Finance.

Study co-author from the School of Accounting at RMIT University in Melbourne, Australia, Dr Daniel Richards, said the results showed a surprising pattern.

“We found a strong tendency for individual traders to sell their losses on a Monday morning, while selling of gains occurred throughout the week,” Richards said.

“But research shows that market returns are generally higher on Fridays than on Mondays, which is why organisations will rarely sell on a Monday. Hence, it appears these Monday sell-offs by individuals are motivated more by mood than by stock results.”

But why do traders choose to face the anguish of selling losses, where a paper loss is crystallised into a real loss, on Monday morning when the market opens?

“The weekend break allows time for investors to digest their bad investment decision and make the tough call on selling a loss,” Richards suggests. 

“Considering that Monday mornings and selling losses both have negative connotations, investors choose to combine these two activities and ‘take out the trash’ on Monday, resetting for the week ahead.”  

The research is important because it suggests that investor susceptibility to bias against selling losses is reduced when people have time to think through investment decisions.  

Study co-author from the University of Cape Town, Associate Professor Gizelle Willows, said the study highlighted how individual investors were trading in different patterns than institutional investors.  

“Individual investors are not only selling more on Mondays, they’re also buying more actively then compared to other days in the week,” Willows said. “This is different to institutional investors who generally trade less on Mondays.”  

The researchers also investigated trading patterns during the day, finding that individuals trading activity followed a W shape: a 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 Financeand, with DOI: 10.1016/j.jbef.2019.02.009

Story: Michael Quin

05 March 2019

Share

05 March 2019

Share

  • Business
Engage

Related News

Uniqlo storefront

Taking the UNIQLO experience to the next level: RMIT students pitch ideas to clothing giant

Last semester, 80 RMIT Impact Academy students in the College of Business and Law were challenged by UNIQLO with an industry-embedded business project in the semester’s Impact Academy course.

24148-Fiona-Notley-1220x732.jpg

Fiona Notley joins RMIT

RMIT welcomes new Chief Operating Officer and Vice-President Fiona Notley, who brings to the role more than 20 years' experience in senior executive positions across education, sport, and health.

Group of students and teachers wearing hi-vis vests in warehouse

Revamped diploma updates logistics for a new generation

A refreshed version of RMIT’s Diploma of Logistics is focusing on the technology and organisational skills needed to make an impact in the fast-changing field of logistics.

Dr. Darcy Allen on stage in front of PowerPointPowerPoint slide reading 'The Supertransition'

“We are on the cusp of a technology-driven ‘supertransition’” - RMIT expert says deep economic change is occurring with profound consequences for business

RMIT economist Dr. Darcy Allen says the world is in an economic ‘supertransition’: profound economic change driven by the simultaneous combination of technologies.

Show more
aboriginal flag
torres strait flag

Acknowledgement of Country

RMIT University acknowledges the people of the Woi wurrung and Boon wurrung language groups of the eastern Kulin Nation on whose unceded lands we conduct the business of the University. RMIT University respectfully acknowledges their Ancestors and Elders, past and present. RMIT also acknowledges the Traditional Custodians and their Ancestors of the lands and waters across Australia where we conduct our business - Artwork 'Sentient' by Hollie Johnson, Gunaikurnai and Monero Ngarigo.

More information