Anxious retail investors are most likely to sell off their losses on Monday mornings, even though that’s generally the worst time of the week to do so.
The findings were published in the Journal of Behavioral and Experimental Finance with study co-author and RMIT accounting academic Dr Daniel Richards expressing surprise at the pattern.
“Research shows that market returns are generally higher on Fridays than on Mondays, which is why organisations will rarely sell on a Monday,” he said.
“Hence, it appears these Monday sell-offs by individuals are motivated more by mood than by stock results.”
Why Monday morning?
In any investment, a loss on paper doesn’t actually turn into a real loss of money until the asset is sold. So why do investors choose the start of the week to cop it on the chin?
Richards said retail investors turn paper losses into a real loss on Monday mornings because they’ve had the weekend to stew over their situation.
“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 results from the research are important because, if given time to think, people can overcome an irrational bias towards keeping their losses.
Institutional investors keep quiet
Another co-author of the study and University of Cape Town academic, associate professor Gizelle Willows, said that institutional investors stay quiet on Mondays.
“Individual investors are not only selling more on Mondays, they’re also buying more actively then compared to other days in the week,” she said.
“This is different to institutional investors who generally trade less on Mondays.”
The research – conducted through a survey of 7,200 retail investors in the United Kingdom – also found mum-and-dad investors followed a “W-shape” in trading activity during the day. There is a lot of activity at the start of the trading day, then the next spike in the middle, and a flurry at the end of the day.
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