A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

“Thank 
God 
It’s 
Monday
Afternoon” Pattern
Another “predictable” pattern, suggesting that a walk
down Wall Street may not be perfectly random, is the so-
called weekend effect—negative average stock returns from

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the close of trading on Friday to the close of trading on
Monday. In other words, there is some justification for the
expression “blue Monday on Wall Street.” According to this
line of thinking, you should buy your stocks on Monday
afternoon at the close, not on Friday afternoon or Monday
morning, when they tend to be selling at slightly higher
prices. Again, however, the effect is small relative to the
transactions cost involved to exploit it, and it is not
dependable from week to week.
Hot News Response
Skeptics of the inherent unpredictability of the market
often point to the fact that the market is simply incapable of
quickly absorbing information and then automatically
repricing itself in response. Some academics believe that stock
prices underreact to news events and that, therefore,
purchasing (selling) stocks where good (bad) news comes out
will produce abnormal returns. Those who explore this aspect
of the market are said to engage in “event studies.”
There is some empirical work suggesting a tendency of
stock prices to underreact to information such as dividend
actions and earnings surprises. This can impart some short-

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term momentum to stock prices. However, Eugene Fama
found that there is often an overreaction to information, and
post-event continuation of abnormal returns is not much
more frequent than post-event reversals. He also showed that
many of the return “anomalies” tend to disappear when
exposed to different models for expected “normal” returns.
He concluded that most of the anomalies discovered by
researchers “can reasonably be attributed to chance.”
Certainly they do not appear to offer investors a dependable
way to earn abnormal returns.