AUTHOR=Ying Qianwei , Yousaf Tahir , Ain Qurat ul , Akhtar Yasmeen TITLE=Investor Psychology, Mood Variations, and Sustainable Cross-Sectional Returns: A Chinese Case Study on Investing in Illiquid Stocks on a Specific Day of the Week JOURNAL=Frontiers in Psychology VOLUME=11 YEAR=2020 URL=https://www.frontiersin.org/journals/psychology/articles/10.3389/fpsyg.2020.00173 DOI=10.3389/fpsyg.2020.00173 ISSN=1664-1078 ABSTRACT=

This paper uncovers a new finding of sustainable cross-sectional variations in stock returns explained by mood fluctuations across the days of the week. Long/short leg of illiquid anomaly returns are extensively related to the days of the week, and the magnitude of excess returns is also striking [Long leg refers to portfolio deciles that earn higher excess returns. Historical evidence suggests that more illiquid stock earn higher excess returns (Amihud, 2002; Corwin and Schultz, 2012)]. The speculative leg of illiquid anomalies is the long leg (Birru, 2018) [The speculative leg falls into the long leg of anomaly because more illiquid stocks are sensitive to investor sentiment (Birru, 2018)]. Therefore, the long (speculative) leg experiences more sustainable high returns on Friday than the short (non-speculative) leg. At the same time, relatively higher long (speculative) leg returns were witnessed on Friday than Monday with a greater magnitude difference. These cross-sectional variations in illiquid stocks on specific days are consistent with the explanation of the limit to arbitrage. The observed variations in cross-sectional returns are sustained and consistent with plenty of evidence from psychology research regarding the low mood on Monday and high mood on Friday.