Seasonality in Return Skewness: the Day-of-Week Effect

Seasonality is a well-studied phenomenon in financial markets. It manifests in returns, volatility, and the volatility risk premium. Despite being well documented, little (if any) research has been carried out on the seasonality of skew.

Reference [1] fills this gap by studying the day-of-week effect in return skewness. It analyzes five leading stock indices in the US markets from 1928 to 2023. The authors pointed out,

The main contribution of our paper is introducing the day-of-the-week effect into time-varying skewness specifications for stock market return models. In the current study, we find that skewness on Mondays is negative and lower than on Fridays. This suggests that an investor might anticipate frequent small gains and occasional significant losses on Mondays compared to on Fridays. In line with the existing literature, we also report that daily returns are typically negative on Mondays, and expected Monday returns fall below Friday returns across the five leading US stock market indices, indicating the pervasive and persistent nature of the weekend effect. Moreover, Monday returns exhibit higher volatility than Friday returns do. These results are robust across various specifications and subsamples.

Thus, the strategies adopted for investment on days with negative skewness may need to be tailored to manage the inherent risk of substantial losses despite the allure of frequent small gains. Hedging strategies, particularly through options, are vital for downside protection. Emphasising low or no-leverage positions is crucial in such scenarios to mitigate the potential for amplified losses…

In short, Mondays exhibit the lowest and most negative skewness. This research also confirms other research findings, notably,

· Daily returns are typically negative on Mondays, and

· Monday returns show higher volatility than other days.

An interesting follow-up would be to examine the seasonality of the skew risk premium.

Let us know what you think in the comments below.

References

[1] N. Hande Sevgi, Mehmet Baha Karan &M. Hakan Berument, Day-of-the-week effect on stock market returns, volatility, and skewness, Spanish Journal of Finance and Accounting, 1-24, 2025