Market Calendar Anomalies and Investor Behavior: How Irregular Hours Fuel Emotional Trading and Distort Asset Pricing

Market calendar anomalies-systematic patterns in asset returns tied to specific dates, holidays, or seasonal cycles-have long intrigued investors and academics. While traditional finance theory struggles to explain these deviations from market efficiency, behavioral economics offers a compelling lens: investor emotions. Recent research underscores how irregular market hours, such as holidays and early closures, amplify emotional trading biases, leading to asset pricing distortions. This analysis explores the mechanisms linking calendar anomalies to investor psychology, liquidity dynamics, and market outcomes.

The Psychology of Irregular Market Hours

Irregular trading hours, including holidays and early closures, create unique psychological conditions that heighten emotional decision-making. For instance,
the ∪-shaped pattern of trading activity-peaking near market open and close-introduces over-aggregation biases in volatility and liquidity estimates. During irregular hours,
liquidity often declines, particularly from late November through early January, driven by reduced participation and overlapping global holidays. This liquidity crunch exacerbates emotional responses:
fear and greed, two dominant investor emotions, become more pronounced when market conditions are volatile and execution costs rise.

Fear, often triggered by inflation concerns or geopolitical tensions, drives risk-averse behavior, such as a shift toward safe-haven assets like gold or government bonds. Conversely, greed-fueled by rapid price gains or FOMO (fear of missing out)-sparks speculative buying, especially in high-growth sectors like technology and AI. These emotional biases are amplified during irregular hours, as
reduced liquidity and overlapping holidays create a "perfect storm" for distorted asset pricing.

Asset Pricing Distortions and Return Predictability

Emotional trading during irregular hours directly impacts asset pricing.
A 2025 study found that a long-short emotion-based trading strategy generated an alpha of 4.92%, demonstrating how emotional biases create mispricing opportunities. For example, during the Thanksgiving week slowdown or the mid-to-late December fade,
wider bid-ask spreads and slower execution times increase transaction costs, further distorting prices.

Moreover,
anomaly returns are often strongest immediately after information releases, particularly in the first month, before diminishing as markets adjust. This suggests that irregular hours-when liquidity is low and emotional biases are high-create fertile ground for short-term mispricing. Academic studies, however, often underestimate these effects due to outdated portfolio formation methods, such as June rebalancing, which fail to capture the immediate impact of new information.

Mitigating Emotional Biases in Irregular Hours

Investors can mitigate the risks of emotional trading during irregular hours by understanding seasonal liquidity cycles. For instance,
avoiding high-risk trades during periods of known liquidity decline-such as late November to early January-can reduce implementation risk. Additionally,
algorithmic trading strategies that account for ∪-shaped volatility patterns may help manage over-aggregation biases.

Conclusion

Market calendar anomalies are not mere statistical curiosities but reflections of deep-seated investor psychology. Irregular trading hours, by disrupting liquidity and amplifying emotional biases, create conditions ripe for asset pricing distortions. As behavioral finance continues to evolve, investors must recognize these patterns and adapt their strategies to navigate the emotional tides of the market.