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