Anomalies in Indian Stock Market: Day-of-the-Week Effect

Abstract

The efficient market hypothesis demands that stock prices must efficiently reflect all available information about their intrinsic value. Existing studies on day-of-the-week effects focus majorly on the developed nations with a little focus towards emerging market. To deal with this gap in the literature, an empirical investigation of day-of-the-week effect was conducted using large-cap, mid-cap and small-cap indices of Indian stock market from the period 2012–2015. Generalised Autoregressive Conditional Heteroscedasticity model was applied to study the day-of-the-week effect on stock returns and volatility. The empirical results from the study showed Monday effects in small-cap indices and absence of day-of-the-week effect in mid-cap and large-cap indices. The average return on Monday of small-cap indices is statistically significant and higher than average return on Monday of mid-cap indices and average return on Friday of large-cap indices. The results of this paper predict profitable propositions for traders on future prices of small-cap indices. However, the situation was concluded to be not very lucrative for mid-cap and large-cap indices.