Volatility can be both good and bad. It’s to your benefit when you get it right but the opposite when you get it wrong. Thus, it might be of interest to know which day of the week is stocks’ most volatile.
Our backtests show that the volatility in the stock market during the trading week is dispersed throughout the week, and it’s hard to determine which day of the week is the most volatile.
To find which weekday is the most volatile for stocks, we need to backtest. As a proxy for the stock market, we use the ETF with the ticker code SPY, the oldest ETF still trading.
There are, of course, many ways to measure volatility. In this article, we make three different definitions and backtests to look into the matter.
Let’s start with our first volatility measure:
The opening gap volatility per weekday
Let’s first look at which weekday has the most volatile opening. We measure the absolute change from the close yesterday to the opening the next day. The number is based on the average of the last 500 observations. Thus, we backtest about ten years of data.
Let’s make a screenshot of how the opening gap volatility varies from time to time (no matter which day of the week):
The upper pane is the price chart of the S&P 500 (SPY), while the lower pane (red line) is the moving average of the last 500 observations of the opening gap (the opening minus yesterday’s close divided by yesterday’s close).
As you can see, it varies. But overall, when a bear market sets in, volatility picks up (a lot). That is not surprising for the loyal readers that have followed this blog over the years. The red number on the right side shows the average of the last 500 observations: 0.48%.
The table below divides the opening gap into volatility per day of the week:
| Monday | 0.536% |
| Tuesday | 0.511% |
| Wednesday | 0.429% |
| Thursday | 0.505% |
| Friday | 0.461% |
Based on the opening gap, Monday is the most volatile day of the week, perhaps not surprising due to the two (or more if holiday) non-trading days since the close of Friday. Sometimes a lot of news needs to be discounted over the weekend.
The intraday volatility per weekday
Let’s look at the volatility that happens between the open and the close every day. Does this differ much between the five different trading days of the week?
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Let’s backtest and find out: we use the High minus the Low, divide on the Close, and use the last 500 observations per weekday as an average. The daily movement looks like this:
| Monday | 1.31% |
| Tuesday | 1.32% |
| Wednesday | 1.37% |
| Thursday | 1.43% |
| Friday | 1.42% |
It seems like the most volatility is at the end of the week, but the differences are not huge.
The close-to-close volatility per weekday
Let’s make a third and final backtest: we measure the average volatility per weekday for the return from the close to the next day’s close. Again we are using the average of the last 500 observations per weekday:
| Monday | 0.82% |
| Tuesday | 0.83% |
| Wednesday | 0.8% |
| Thursday | 0.92% |
| Friday | 1.03% |
Yet again we discover that the volatility seems to pick up toward the end of the week.
Which day of the week is stocks’ most volatile? Conclusion
In this short post, we did three backtests to look at which day of the week is stocks’ most volatile. We would argue the evidence is slightly inconclusive, albeit stocks seem to be a bit more volatile toward the end of the week, while the opening gap is most volatile on Mondays.
