Stock Returns Around Memorial Day

Does the Memorial Day holiday signal any unusual return effects? By its definition, this holiday brings with it any effects from three-day weekends and sometimes the turn of the month. Prior to 1971, the U.S. celebrated Memorial Day on May 30. Effective in 1971, Memorial Day became the last Monday in May. To investigate the possibility of short-term effects on stock market returns around Memorial Day, we analyze the historical behavior of the stock market during the three trading days before and the three trading days after the holiday. Using daily closing levels of the S&P 500 Index for 1950-2010 (61 observations), we find that:

The following chart shows the S&P 500 Index average daily returns from three trading days before (M-3) through three trading days after (M+3) Memorial Day for 1971-2010 (40 observations), with one standard deviation variability ranges. The average daily return for all trading days in this subsample is 0.03%. Results suggest there may be bumps in return and volatility the day after. As usual for daily data, noise generally dominates signal (standard deviations are large compared to the differences from the average return for all days).

This modern subsample is too small to extract reliably any turn-of-the-month influence on returns.

Is there consistency between subperiods before and after the 1971 rescheduling of Memorial Day?

The next chart compares S&P 500 Index average daily returns over the three trading days before and after Memorial Day during 1950-1970 (21 observations) and 1971-2010 subsamples. This chart shows no variability ranges and uses a finer vertical scale than the preceding chart. The most noticeable difference is the large average return on the day before Memorial Day in the older subsample. There is confirmation of a small bump in returns on average the day after the holiday.

Volatility is not relatively high the day after Memorial Day in the pre-1971 the subsample.

In summary, best guess is that any anomalous U.S. stock market behavior around Memorial Day is slight strength one trading day after the holiday, along with extra variability for that day.

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