Trading strategies in the Colombo Stock Exchange in Sri Lanka: Day of the Week Effect

Abstract

Trading strategies in the stock market lead against the Efficient Market Hypothesis which is introduced by Fama in 1970. Colombo Stock Exchange is not even touched the weak form, semi Strong form and Strong form market efficiencies. Therefore the investors have the opportunity to use trading strategy as earning strategy .Seasonality effects are very famous in the stock market and Day of the week effect gives the fruitful idea towards them. The day-of-the-week effect was first observed by Fields (1931) and in US market and thereafter more researchers have tested the Day of the week effect in several market and revealed different results from each and every market. Accordingly time to time they had come up with new concepts. This research evaluated the total sample period and revealed that Day of the week effect exists in the CSE as per the model we used. Furthermore we revealed that day of the week effect exists in the share market throughout the pre-war period as well as the Post war period. However in the post war period Friday return is more positive than the pre-war period and Monday reflects the negative return in both period and the negative return seems to be expand during the post war period. Accordingly through this research we focus to enrich the investor’s understanding about the share price movements and support to forecast the future stock price movements in relates to this anomaly. This will be most useful for the speculators to gain the entire advantage of the short transactions. Because we analyze the reliability of the buying and selling decisions by affecting the day of the week effect. Further we have analyze the results by adjusting the trading cost. It will provide more reliable information to the investors to come across suitable decisions.