RETURN AUTOCORRELATIONS AROUND NONTRADING DAYS

We document a pattern in the serial dependence of security returns around nontrading days. The correlation of return the second day after a weekend or holiday with returns the first day after is unusually low, and in many return series is negative, implying a reversal of price movements. We also document unusually large positive return autocorrelations the last day before and the first day after weekends and holidays. The pattern has existed in equity returns for over 100 years, and also exists in several futures markets, implying that the pattern is robust to alternative market micro-structures.