Are investors attentive before a one-off holiday?

Abstract

Purpose

This study investigates investor trading behaviour around regular and one-off public holidays on the Sydney Stock Exchange (SSX) from 1901 to 1950. The purpose is to examine whether trading patterns differ between regular holidays, which are known in advance, and one-off holidays, which are unexpected. The study provides insights into the predictability of holidays and its influence on market activity, contributing to the broader literature on investor inattention and market anomalies.

Design/methodology/approach

Using a novel dataset constructed from handwritten share price lists covering 14,224 trading days, we perform quantitative analysis to assess trading volume before and after regular and one-off public holidays. Ordinary least squares regression models are employed to identify the presence of a holiday effect, accounting for various fixed effects and time-varying factors such as geopolitical events.

Findings

We find that trading volume is significantly lower on the day before regular holidays and higher on the day after, consistent with the investor inattention hypothesis. In contrast, no significant holiday effect is observed for one-off holidays. This suggests that predictability plays a crucial role in influencing investor behaviour, with irregular, less predictable holidays having less impact on trading patterns.

Research limitations/implications

The study is limited by the historical nature of the data, which may not fully capture the diversity of modern trading environments. Additionally, the analysis is restricted to the SSX and may not be generalisable to other markets or time periods. Future research could explore similar effects in different contexts or with more recent data.

Practical implications

This research provides valuable insights for market participants and regulators by demonstrating how the predictability of holidays influences market activity. Understanding these patterns could help in making more informed decisions during periods of expected low trading volumes.

Social implications

The study underscores the role of public holidays in shaping investor behaviour, with broader implications for understanding how societal events influence financial markets. This is particularly relevant in discussions about the impact of unexpected events on market stability.

Originality/value

This is the first study to compare the effects of regular and one-off public holidays on trading volumes in a historical stock market context. Our findings highlight the importance of event predictability in financial markets, offering a new perspective on how historical market behaviours can inform current financial theories.

Citation

Fleming, G., Liu, Z.(F)., Merrett, D. and Ville, S. (2024), "Are investors attentive before a one-off holiday?", Journal of Accounting Literature, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JAL-08-2024-0219