Revisiting Day of the Week Effect in Indian Stock Market

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FM 303 Revisiting Day-of-The-Week Effect in Indian Stock Market


Dr. Deepa Mangala

Lecturer, Haryana School of Business,

Guru Jambheshwar University of Science & Technology, Hisar

Mobile No. - 9416396883

Email Address-

Monika Dhawan

Student, M BA Final Year, Haryana School of Business,

Guru Jambheshwar University of Science & Technology, Hisar

Mobile No.- 9896881380

Email Address-


In recent years the testing of market anomalies in stock returns has become an active field of research in empirical finance and has been receiving attention not only from academic journals but also from the financial press as well. Among the more well-known anomalies are the size effect, the January effect and the day-of-the week effect. According to this phenomenon, the average daily return of the market is not the same for all days of the week, as we would expect on the basis of the efficient market theory. The objective of this paper is to examine the existence of day of week effect in Indian stock market. Daily closing prices of S&P CNX Nifty index have been analyzed over fifteen years period commencing from January 1994 to December 2008. A set of parametric and non parametric tests has been used to test the equality of mean returns and standard deviations of the returns. The mean returns on Monday and Tuesday are negative while on Wednesday these are highly positive. Also, the impact of introduction of rolling settlement on the stock returns is observed. The results show that before rolling settlement came in 2001, Tuesday was showing highly negative returns and Wednesday highly positive. But after the introduction of rolling settlement, the seasonality in the distribution of the mean returns across different days of the week ceased to appear. Thus the markets have become more efficient over a period of time.

KEY WORDS: Market Efficiency, Calendar Anomalies and Day-of-the-Week Effect

A Stock Exchange is a common platform where buyers and sellers come together to transact in securities. It may be a physical entity where brokers trade on a physical trading floor via an "open outcry" system or a virtual environment. The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) are the India's two leading stock exchanges. Indian security market is one of the oldest markets in Asia. It has come a long way from earlier days of floor trading to the present day screen and net based trading. This study is an attempt to have a deeper insight in to the behaviour and patterns of stock price distribution in the Indian stock market.

The price of a security should vibrate around its intrinsic worth in any efficient market. In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient", or that prices on traded assets, e.g., stocks, bonds, or property, already reflect all known information. The efficient-market hypothesis states that it is impossible to consistently outperform the market by using any information that the market already knows, except through luck. Therefore, the past price movements can in no way help in speculating the prices in future. The price of each day is independent. It may be unchanged, higher or lower from the previous price, but depends upon new pieces of information being received each day. So seasonalities cannot be used to formulate trading strategies to earn abnormal returns according to efficient market hypothesis theory. Calendar anomalies are cyclical anomalies in returns, where the cycle is based on the calendar. It describes the tendency of stocks to perform differently at different times. For example, a number of researchers have documented that historically, returns tend to be higher in January compared to other months (especially February). There are three types of efficiencies as explained in efficient market hypothesis....