Abstract:
Seasonalities in security market returns have been extensively documented. Among the
different seasonal effects observed in stock markets, an interesting one is the seasonality
across days of the week. Fields (1991) observed that the US stock market consistently
experienced significant negative and positive returns on Mondays and Fridays
respectively. This matter was further tested in 1980’s (French, 1980; Gibbons and Hess
1981, Lakonishok and Levi 1982). The capital markets of many other countries also
experience the similar seasonality (Jaffe and Westerfield 1985, peiro 1994, Agarwal and
Tando 1994). This day of the week effect is a sharp contrast to the efficient market
hypothesis. This study examines the day of the week effect in the Colombo Stock
Exchange using the All Share Price Index (ASPI) and the Milanka Price Index (MPI).
The study covers the period from 1985 to 2004.
We compute the returns of the above market indexes as daily price relatives and log
returns are taken for the study. To estimate day of the week effect in return, we use the
ordinary least square (OLS) equation. In the equation index returns are taken as the
dependent variable and five dummy variables are inserted as independent variables from
Monday to Friday.
We estimate the day of the week effect for the total sample period and revealed that there
is no any significant day of the week effect in the total period. Then we analyzed the day
of the week effect in five year sub samples and results are similar to the total sample
period except in the last sub sample that is from 2000 to 2004. In the last sub sample
there is a statistically significant Friday effect and for other days, returns are not
significant.
