Theoretically, the stock market and individual stocks should adjust immediately after updated information reaches both the market and its investors. However, the day of the week also influences volatility for additional reasons. The most volatile day of the week is Monday in the U.S. and International stock markets. Many maintain, however, that Wednesday or Friday typically record the most volatility. Actual day aside, the overall reason for market volatility is consistent: uncertainty.
Monday volatility captures most observers' votes, as it follows two days of market inactivity. Many corporations make earnings and operations announcements after the Friday market close to mitigate the stock price effects of major public or shareholder information. The two-day inactivity period, regardless of major announcements, alone also contributes to increased investor activity, generating more volatility and trades. Weekend announcements of earnings, executive changes, mergers and acquisitions further increase volatility and activity.
It appears that the most dramatic stock price swings tend to occur on Wednesday, after the Monday and Tuesday active market days of the current week. If you define volatility as largest volume of price increases or decreases, Wednesday historically is king. You can chart the total or individual stock price swings, both up and down, from a variety of Internet websites. Volume of trades may be high or moderate, but price fluctuations tend to be large on Wednesdays.
Just as uncertainty is the unwritten motivator for Monday volatility, Friday volatility occurs for the same reason. Since investors cannot control financial, political or economic events while the markets are closed over the weekend, volatility often happens on Friday, particularly in the U.S. and Canadian stock markets. Uncertainty drives market volatility; it always has and probably always will. The day before two days of inactivity will fuel buy, sell and price changes for this reason.
Volatility is neither good nor bad. Economists typically use a standard deviation measurement to record differences in returns for a single security, or the market as a whole, to evaluate volatility. Measuring the number of stocks traded on a given day also offers a benchmark. However, some would argue that volatility measurement is more dependent upon the size of price differences on a given day than the number and variety of shares traded.
Bull (optimistic) and bear (pessimistic) markets influence the most volatile days of the week. One of the most simplistic truths of stock markets cannot be forgotten. For every investor selling stock, believing its price will go down, there is a buyer who believes the price and value will go up. Therefore, whether the bulls or the bears rule the market on Monday, Wednesday or Friday, there will be volatility.
In the early 1990s, the Chicago Board Options Exchange designed the VIX, predicting the market's "expectation of 30-day volatility." The VIX has become another tool to predict volatility. VIX variations track the S&P 500, the NASDAQ 100 and the Dow Jones Industrial Average. Large investors who use the VIX can sometimes influence stock market volatility on a given day, week or month.