Day of the week effect: new evidence from developing stock market a special reference to Colombo stock exchange period from 1985 to 2007

Abstract

This research aimed to study the day of the week effect seasonalties on the emerging stock market and the efficient market hypothesis. This research attempted to examine the day of the week effect on stock returns in the selected stock market in Colombo Slock Exchange (CSE). To achieve the objectives four hypotheses were developed for testing. The sample included emerging stock market from CSE. The sample period covers from 1985 to 2007.Adjusted closed stock market indices are collected through online data stream. Analysis was done for the entire sample period and for the four sub samples of equal length for the test of day of the week effect. Parametric and non parametric statistics are used for testing the hypotheses. The one way ANOVA procedure was used and Kruskal Wallis test was employed to substantiate the results of the existence of the day of the week effect. The results of the analysis revealed that the null hypothesis of equality in mean return is rejected and shows there is a day of the week effect in stock market in CSE in Sri Lanka. The reasons for volatility in mean returns is felt that the impact of different settlement procedures. In summary, the results of the analysis for the entire sample period reveals thai a negative mean return on Monday and Tuesday. But a positive significant effect is observed on Thursday and Friday for the entire sample period on the other hand a positive significant mean return is observed on Monday for the first sub sample period whereas a position significant effect is reported on Wednesday, Thursday and Friday for the fourth sub sample period. The reason for the irregidarities with stock may be due to Asian crisis and the global stock market crash, and collapse of the blue ships stocks in US recently. It has important implementations for the investors, management of companies and the stock market regulating agencies. The investors could make use of these findings to make decisions with regard to changes buy or sell, they have to make their portfolio to make profits or avoid losses. Hence the day of the week ejfect is anomalies in that they represent opportunities for investors to maximize their returns by choosing to trade on certain days. Further findings facilitate the investors with awareness oj the advantages of investment and interest in the day of the week effect. This will provides the investors with necessary information about the certainty of the return for their investment. This kind of research can motivate the development of share market activities through an effect of findings way and means to earn better return to the investors of the world stock markets and the development of stock exchange and to the development of the national economy.