One striking behavioral regularity often cited as evidence of behavioral biases in the market is investors’ inattention on Fridays. This regularity is explained using the intuition that on Fridays, investors and traders could be preoccupied with the upcoming weekend and, thus, pay less attention to corporate news announcements on that day. Studies investigating this issue reported reduced response to earnings announcements (DellaVigna and Pollet, 2009) and merger announcements (Louis and Sun, 2010) on Fridays.
In our article we show that this pattern in investor behavior on Fridays appears to extend to corporate news events other than earnings and merger announcements. We find a reduced reaction to announcements of dividend changes, repurchases, and seasoned equity offerings (SEOs) on Fridays. Taken at face value, these combined results could present comprehensive and persuasive evidence that investors underreact to events occurring in the market on Fridays, which is consistent with inattention on these days. However, we show it is not investors’ inattention but rather selection bias that is the reason for the findings of reduced reaction on Fridays. We conclude that while various examples of cognitive constraints are reported in the literature, reduced investor reaction to Friday news is not a manifestation of this phenomenon.