by Dave Coker

Created on: June 23, 2008

Ah, the stock market. Cathedral of capitalism, patrolled by cold blooded MBAs, one might initially think this is a land where reason prevails, a place where the irrational do not tread.

But this couldn't be further from the truth. While most of what happens on Wall Street - and hence the stock market - is indeed rational, dictated as it is by the calculus of profit, there are broad exceptions to this rule. In other words, there are multiple examples of irrational behavior in the stock market.

Consider for example, The Weekend Effect, which documents negative a correlation between Friday and Monday results for some shares.

Some believe the Weekend Effect is driven by short sellers purchasing shares Friday afternoon to close open positions. But others speculate this is caused by the corporate practice of "burying" bad news by releasing it on Friday afternoons after the markets are closed, thus leading to a Monday morning sell off. Regardless of the cause, The Weekend Effect has been observed in most G20 stock markets, and in some cases for almost a century.

And while there are other examples of irrational behavior linked to specific days of the week, we also see a large number of what are called "calendar effect" anomalies. These tend to be observed at or during specific times of the year, and once again cut across national and cultural boundaries.

The January Effect, for example, refers to the tendency of the equity markets annual returns to follow the results of the first five trading days in January. In other words, if the market finishes the first week of the year on a positive note, so will the entire year and vice versa. This is clearly irrational, as what happens the first five days of the trading year shouldn't have any bearing whatsoever on the market's performance over the remainder of the year. But The January Effect has been observed and documented for decades.

Christmas brings us another example of irrational behavior, The Santa Claus Effect, which gives equity market participants a December gift in the form of an end of year rally and higher share prices.

And then there is the olde English expression "Sell in May and go Away but buy back on St. Leger Day". A phenomenon that not only has been observed globally in most stock markets, but also documented in England since 1694. Adherents believe in liquidating share holdings each May, not re-entering the market until "St. Leger Day", a date in late September which refers to the running of a horse race at

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