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Why Afterpay and Zip investors should buy Tuesday and sell Friday
Investors in speculative stocks, including Afterpay and Zip, can theoretically purchase more shares at a reduced price on a Tuesday, before seeing the value increase on a Friday, new research has revealed.
Why Afterpay and Zip investors should buy Tuesday and sell Friday
Investors in speculative stocks, including Afterpay and Zip, can theoretically purchase more shares at a reduced price on a Tuesday, before seeing the value increase on a Friday, new research has revealed.
In a conversation with nestegg, RMIT’s senior lecturer in finance, Dr Angel Zhong, pointed out how speculative stocks, including the market favourite Afterpay and Zip, are greatly impacted by the mood of individual investors.
Dr Zhong and Swinburne University of Technology’s Dr Mardy Chiah ran a regression of speculative shares between 1990 to 2019 and found that retail investors returning to work had a negative mindset, forcing prices down, while those excited for the weekend pushed prices up.
“The impact of mood is more pronounced when you are making decisions with high uncertainty,” Dr Zhong said.
“So, in the stock market, making investment in young, speculative, volatile stocks means the impact of mood will be more pronounced.”
“On Monday, when investors are more pessimistic, they will push the price down, but on Friday you tend to be more optimistic, so you’ll view speculative favourably. We find speculative stocks outperform on a Friday,” she said.
While the professor warned against day trading, discussing a recent Robin Hood phenomenon which has seen investors lose in the market, she explained the cheapest price for speculative stocks will be on a Tuesday.
“We studied this over a long sample period and it is robust over our sample period. But investors should buy speculative stocks at the start of the week and sell on a Friday,” Dr Zhong noted.
Why Tuesday
The economist noted that despite the start of the week being Monday, investors are feeling the blues on a Tuesday due to the size of the United States market.
“We’ve documented the Monday blues effect because it should be the day you’re most upset,” Dr Zhong said.
“But this striking Tuesday blues effect is actually spilling over from the US market.”
“The mood of the US affects Australia. We are 14 hours ahead of New York, so when we are trading on a Tuesday, the US is trading on a Monday, so our investors are impacted by the mood of the US,” she explained.
Given it is human nature to be in a positive or negative mood, Dr Zhong explained to retail investors it is very difficult to get past their mood.
Instead, she points out the importance of clearly thinking through any investment decision.
“Think thoroughly before acting on any piece of advice or executing any transaction. So, do your research before purchasing or selling stocks,” Dr Zhong said.
Market cycle impacts
With economies battling the COVID-19 pandemic, the impacts of mood on the stock exchange has been tipped to be more pronounced.
While her modelling stopped prior to the COVID-19 outbreak, the finance experts’ research also pointed out that market cycles have a profound impact on the mood of investors, leading to greater swings in prices.
“In the crisis, we found that the price is depressed to a greater extent on a Monday and Tuesday on a crisis as it is much stronger.”
However, in positive news, investors during good times will also experience stronger highs.
“Friday in an up market will have stronger growth,” Dr Zhong concluded.
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