European trading volumes on cross-market holidays

There is anecdotal evidence of reduced trading volume in equity markets when other external markets are not trading. This phenomenon can be called the cross-market holiday effect, and this study investigates it in detail, providing evidence for the existence of a strong cross-market holiday effect in the pan-European equity markets. The analysis provides an in-depth examination of other aspects like lagged volumes, market capitalization, or multistep ahead modelling. The trading volumes on dates when there is at least one cross-market holiday are on average 8.5% lower than the volumes of the previous period. There are salient effects when the holiday takes place in a dominant market or when most of the European markets are shut. We test whether the lower trading activity on Monday cross-market holidays is a consequence of the weekend effect or whether the Monday bank holidays push down the Monday trading volume. We report a significantly lower volume associated with the Monday bank holidays, and we argue that the weekend effect has an insignificant impact on the Monday volumes where there is at least one regional cross-market holiday.