Investors must pay attention to the trading patterns: "Stocks tend to decline before holidays and rise after, and Wednesday and Friday are good days for trading Hong Kong stocks!"

"The 'Spring Frenzy' and the saying 'Five Poor, Six Desolate, Seven Reversal' are well-known seasonal trends among Hong Kong investors.

Now, let's zoom in and see if there are any patterns in the Hong Kong stock market during the five trading days of a week and the holiday closures.

Based on the analysis of the Hang Seng Index from the first trading day in January 1991 to the last trading day in May 2023 by Dong Chongyu, an analyst at Guohai Securities, it is indeed true that there are certain intra-week and holiday effects in the Hong Kong stock market!

Here are the details:

1. "Hong Kong holidays generally have short closures and occur frequently." The Hong Kong stock market closes for more than 10 holidays each year, with closures usually not exceeding 4 days. In the past 33 years, there have been only 17 instances where holidays and weekends combined to create a continuous closure of 5 days, which is relatively rare.

2. "During the period from the 10th trading day before the National Day or Christmas to the 2nd or 3rd trading day before the holiday, the index may experience a downward trend, followed by an upward trend in the next ten trading days."

"The downward trend before the Spring Festival is not obvious, but there may be a turning point towards an upward trend on the trading days leading up to and following the holiday. The first trading day after the Spring Festival has a large standard deviation in terms of price fluctuations, so risks should be taken into account."

The reasons for the holiday effects may include fund hedging, holiday fund demand, and the month-end effect.

1. "In general, the longer the closure, the more significant the holiday effect." When the samples are classified according to the number of closure days, there are differences in the magnitude of the "down before the holiday, up after the holiday" trend, which may decrease in order.

2. "Friday and Wednesday tend to perform better than Thursday, especially in bear markets; in bear markets, there is a higher probability of a larger drop on Mondays; this implies the existence of a 'Black Monday' or 'Black Thursday' effect in bear markets."

Statistical results show that the Hang Seng Index performs better on Wednesdays and Fridays compared to Thursdays, while Mondays show a mixed performance: during bull markets, Mondays perform relatively well compared to bear markets, but during bear markets, Mondays are the worst performing day among the five trading days.

In bear markets, Mondays have a higher probability of experiencing a drop and a drop of more than 1% or 2% compared to other trading days, although Thursdays also show a relatively poor performance, with the probability of a drop and a larger drop in the index ranking second only to Mondays.

Additionally, during bear markets, the Hang Seng Index may experience greater volatility on Mondays and Wednesdays.

"

Where does the holiday effect come from?

1. Increased demand for holiday consumption funds. Many people plan their annual trips during long holidays. The Spring Festival and Christmas holidays are peak periods for consumption and travel, and people have higher financial needs. Therefore, many people redeem funds or sell stocks before the holidays to use the funds for holiday consumption.

Since it takes time to sell stocks and funds and withdraw cash, funds withdrawn for consumption purposes during the peak period will not be withdrawn in the last two trading days before the holidays. Other investors may "anticipate your anticipation" and withdraw funds earlier. This leads to a possible decline in the Hang Seng Index in the two weeks before the holidays, but this decline will stop in the 2-3 trading days before the holidays. After the holidays, as the uncertainty of the long holiday dissipates, investors may increase their positions, and the index may gradually rebound in the two weeks after the holidays.

2. Uncertainty leads to the need for capital hedging. Although the stock market is closed during the holidays, economic activities do not stop, and the impact of fluctuations in overseas markets, which may not be closed, also needs to be considered.

Although the Hong Kong stock market is closed for a relatively short period, usually 3-4 days, during this time, some important information may not be reflected in the market before the holidays. Therefore, in order to avoid risk events during the holidays, many investors withdraw funds before the holidays to mitigate risks.

3. The combined effect of the holiday effect and the month-end effect. It can be observed that holidays such as New Year's Day, National Day, and Labor Day occur at the beginning of the month, so the month-end effect may also improve the performance of the several trading days (month-end window period) after these holidays.

Potential reasons for the intraweek effect

(1) The information disclosure effect may be the most important reason for the divergence of trends on Mondays. A series of news or other information may occur over the weekend and be reflected at the opening on Monday. During a bear market, the overall market sentiment is pessimistic, and the reaction to announcements or news is relatively negative, so the performance on Mondays during a bear market may be relatively poor.

(2) Investor sentiment and other psychological factors can also cause intraweek effects. Many scholars have studied the impact of sentiment and other factors on index performance.

Research shows that people's mood improves on Fridays and worsens on Mondays. Generally, people tend to evaluate future prospects more optimistically when they are in a good mood, and changes in mood can affect stock returns, especially for stocks that are difficult to value and arbitrage.

Justin Birru's research confirms that there are significant intraweek variations in stock returns: speculative stocks have lower returns on Mondays and higher returns on Fridays. In addition, some studies indicate that in the absence of specific information, the influence of sentiment on decision-making will be greater. During a bear market, market behavior is more driven by emotions, so the intraweek effect is more significant and returns are more volatile.