Cultural Holidays and Equity Returns

This dissertation studies the role of cultural holidays in equity pricing. In the first essay, we study individual stock returns in eleven major international markets that celebrate six cultural New Year holidays not on January 1st. Our results show that stock markets tend to outperform in days surrounding the cultural New Year. After controlling for firm characteristics, an average stock earns a one to two percentage point higher abnormal return in days surrounding the cultural New Year's day relative to other non-January times of the year. Our further evidence suggests that a positive holiday mood in conjunction with cash infusions prior to the cultural New Year produces elevated stock prices, particularly among the stocks most preferred and traded by individual investors. In the second essay, we find that investors react more favorably to share repurchases, SEOs, acquisitions, and earnings announcements when the announcement is made immediately prior to or on a holiday (i.e. pre-holiday trading days). Corporate events that typically trigger stock price declines are associated with abnormal reactions that are 22 to 49 basis points less negative on pre-holiday trading days, and events that usually result in stock price increases are associated with reactions that are 14 to 78 basis points more positive on these days. The results are not explained by a pre-holiday up market, monthly investor sentiment, short selling, investor limited attention, or adverse selection of firm announcements. Using Gallup survey data, we provide evidence that people are happier and less worried immediately prior to holidays, suggesting that our findings could be explained by an optimistic pre-holiday investor mood. Our study contributes to the literature on the pre-holiday effect by providing novel evidence that investor anticipation of holidays elevates announcement reactions to corporate events.