A federal holiday often portends a long weekend for travel -- or maybe just an extra day off to relax. But can a holiday also benefit your stock portfolio?
A group of researchers who explored the so-called "holiday effect" says yes. Their study, published in 2025 in the Review of Financial Economics, looked at stock returns before and after the 11 federal holidays.
The team found that three holidays in particular -- including Presidents Day -- "are more likely to yield positive abnormal returns." The other two were Martin Luther King Jr. Day and Thanksgiving.
The researchers, who looked at 100 largest stocks by market capitalization on the New York Stock Exchange between 2014 and 2024, say the study has real-life applications.
As co-author Nikolas Albertson, an economist at TradeWell Securities, told Barron's, they found "statistically significant results that holiday effects exist, and if you were to pair that up with common knowledge of the market, you could take advantage of the opportunity."
Albertson began looking into the subject as an undergraduate at Purdue University Fort Wayne, out of an interest in different investment strategies, before earning a master's degree in applied economics from Georgetown. He co-authored the study with three Purdue professors.
To isolate possible holiday effects, the study used the S&P 500's performance as a benchmark. While the paper didn't focus on the magnitude of returns, it offers investors insights into the probability that an abnormal positive return occurred during the study period.
For instance, the day before the Presidents Day holiday weekend showed a 53% chance of a positive return from 2014 to 2024, just below MLK Jr. Day at 56%.
The authors also broke down the results by quartiles within the top 100 stocks.
This type of information about market behavior might be especially useful to bigger investors. "If you're a large enough institutional investor, this could lead to larger profits," said co-author Heather L.R. Tierney, an economics professor at Purdue University. "Even for the day traders out there, identifying these small movements can lead to large gains over time."
One jumping-off point for the paper was the possible psychological effect on traders of an upcoming holiday -- which may spark better sentiment and more appetite for risk taking. That human factor "is often overlooked," said Tierney.
Market liquidity, or lack thereof, during holiday periods was another consideration.
The idea is that market movers are "trying to wrap up their positions before the market is closed longer than it normally would be," said Albertson.
At that point, liquidity would be running thinner, he said, and it would take less momentum "to push prices up as it would on any other trading day."