The Pre-Holiday Effect is a calendar anomaly in equities – it is the tendency for a stock market to gain on the final trading day before a holiday. Research shows that market return during pre-holiday days is often more than ten times larger than the average return during normal trading days. It seems that a substantial part of the equity premium is concentrated in these several days.

This anomaly has been documented in many countries, so its validity seems really strong. Pre-holiday days on the market are often characterized by lower liquidity as a lot of market participants are not involved in the market, or they lower their exposure. A higher probability of positive market movement is consequently only a natural tendency as people are psychologically more optimistic. Therefore a very simple strategy could be constructed to exploit this market in-efficiency.

The main explanatory factors for this anomaly are behavioral. One explanation states that short-sellers close their risky positions prior to holidays. Another reason could be investors’ good mood around holidays, indicating greater optimism about future prospects and, therefore, a high probability of positive market moves.