Volatility conditions and the weekend effect of long-short anomalies: Evidence from the US stock market

Abstract

This study examines the relationship between market volatility conditions and the weekend effect on size and profitability anomalies in the U.S. stock market. The study uses the ICSS model to divide the sample into high-and low-volatility periods. Empirical results indicate that the weekend effect of size and profitability anomalies is significant in low-volatility states and insignificant in high-volatility conditions, and it is consistent across different measures of stock market volatility and subsamples. Additionally, we identify the intra-week patterns of log returns on the VIX index as the driver of the weekend effect on profitability and size anomalies. Our study not only extends the understanding of the weekend effect of long-short anomalies but also provides new evidence on the effectiveness of volatility management in factor investing. It also has important implications for investors, who should consider improving their factor investment strategies based on our results.