Business cycles and the pre-holiday effect in stock returns

Abstract

This study introduces business cycles to the analysis of a pre-holiday effect in the Standard and Poor's 500 and NASDAQ return indexes. During expansionary periods, both indexes exhibit a pre-holiday effect, with a more pronounced pre-holiday effect in the NASDAQ index than in the S&P index. During periods of economic contraction, the pre-holiday effect prevails in both indexes, with a stronger pre-holiday effect in the S&P index than in the NASDAQ index. These results suggest that the magnitude of the pre-holiday effect is related to the level of economic activity and firm size.

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