Abstract
This paper investigates the day of the week effect in the volatility of the Saudi Stock Exchange during the period between January 7, 2007 and April 1, 2013. Using a conditional variance framework, we find that the day of the week effect is present in the volatility. Our results show that the lowest volatility occurs on Saturdays and Sundays. We argue that due to the closure of international markets on Saturdays and Sundays, there is not enough activity in the Saudi Stock Exchange. As a result, the volatility is the lowest on these days. Our results also show that the highest volatility occurs on Wednesdays. We argue Wednesday, being the last trading day of the week, corresponds with the start of four non-trading days (Thursday through Sunday) for foreign investors. Fearing that they will be stuck up with stocks in case some unfavorable information enters the market, foreign investors tend to exit the market on Wednesdays. As a result of excessive trading, there is high volatility on Wednesdays.
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