The Truth Behind The Miraculous "Mutual Fund Mondays" Melt Up

Tyler Durden's picture

It has long been accepted that the stock market performs best on capital inflow days, such as the beginning of the month, or Mondays (also known as "merger" or "mutual fund" Mondays). Specifically, looking at market performance for just Monday's from the beginning of 2010, and comparing it to the cumulative "rest of the week" performance, shows a ridiculous outperformance of 16.7% (just for Mondays) to 1.3% (for the ROW) - a miracle anyone even pretends to trade on all non-Monday days. It is also well understood by now that on days in which there is a subpar trader participation, i.e., low volume, the market tends to miraculously levitate. Yet no one has combined these two studies. Sure enough, we don't think many will be surprised by what we have found. As some of the more jaded may expect, NYSE volume on Mondays should be well below the average. Indeed, that is precisely the case. As the chart below courtesy of John Lohman shows, the market, very counterintuitively considering the outperformance finding above, tends to have its lowest volume on Monday, with all other days of the week trending at around the average. Which begs the question: if everyone traded only on Monday, and the resultant volume increased five-fold, will Monday performance suddenly plunge? Is the only reason for the market's upside asymmetric performance the low-volume Monday-focused activity which leaves the HFT machines to be the marginal buyer, all the while collecting liquidity rebates and not losing money in the process? Is the entire stock market nothing than one Fed liquidity Fed, HFT-whisper volume levitating scam? Is it all really just for show, and the fewer the participants, the more money those who actually brave the ponzi make? We leave it up to readers to make their own conclusions. As usual, we leave with the question: if Madoff's investors knew his "fund" was a pyramid scheme, would they actually pull their capital?