Why buy now pay later stocks fall Tuesdays and rise Fridays

Why buy now pay later stocks fall Tuesdays and rise Fridays

Ever heard of Monday blues and thank god it’s Friday? Turns out mindset has a big impact on speculative share prices. And researchers have discovered a Tuesday blues effect too.

An RMIT and Swinburne University study of speculative shares between 1990 and 2019 shows investors’ negative mindset at the start of the week, pushes prices down.

As the weekend approaches, they have a more positive outlook, forcing prices up.

“The effect is greatest for the buy now pay later (BNPL) group of speculative stocks such as Afterpay and Zip,” RMIT senior finance lecturer Angel Zhong says.

In the Australian stock market, these stocks generate low returns on Monday and high returns on Friday as mood improves across the week, she notes.

Tuesday blues

In addition to the Monday blues effect, Zhong found a unique Tuesday blues effect in speculative stocks.  

“Australia is 14 hours ahead of the US, so a Tuesday trading day in Australia corresponds to Monday in the US,” she says.

“Being the largest economy in the world, the US is the bellwether and its sentiment spills over to the Australian market.”

This means speculative stocks generate lower returns on both Mondays and Tuesdays in Australia, she explains. 

Monday Friday sticky notes

Friday euphoria

On the flip side, Zhong found on Friday, when investors’ mood improves as the weekend approaches, speculative stocks generate higher returns.

“That means on average, stocks such as Afterpay and Zip tend to underperform on Monday and Tuesday but outperform on Friday,” she says.

Why mood swings impact the market cycle

Psychological studies show that people are affected by mood when making decisions and tend to respond to stimuli more positively when in a good mood and vice versa, Zhong notes.

The impact of mood on decision making is pronounced when people are facing uncertainty, she adds.

“In the context of stock markets, making a decision with highly uncertain information corresponds to the valuation of speculative stocks, which are young, growing and highly volatile,” she says.

“Mood improves gradually from Monday to Friday ranging from the Monday blues to ‘thank god it’s Friday’.”

That means, investors are more pessimistic on Monday, thus pushing the prices of speculative stocks down.

“Investors are happier on Friday, hence viewing speculative stocks more favourably, and pushing prices up,” Zhong concludes.

 

Story: Diana Robertson

02 September 2020

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02 September 2020

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