(Market efficiency—patterns) One of the puzzling phenomena of financial markets is the “weekend effect.” According to this phenomena, stock returns on Monday are lower than every other day of the week. The following graph presents the returns of the stock market dependent on the day of the week.

a. Do the results contradict market efficiency?

b. Do you have a reasonable explanation as to why the anomaly persists and does not disappear due to the arbitrageurs’ actions?

Transcribed Image Text:

Return 0.15% 0.10% 0.05% 0.00% Weekend Effect: Average Stock Returns on Specific Days of the Week Monday Tuesday Wednesday Thursday Friday -0.05% -0.10% -0.15%