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. Although there are conflicting opinions regarding which specific days of the week are most volatile for stock trading, three specific days have been highlighted as dynamic opportunities for investing: Monday and Friday.
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.
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.
Market Volatility Considerations
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 and Bear Markets
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 or Friday, there will be volatility.
Volatility Index (VIX)
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.