Abstract
The present study has investigated the day of the week and weekend effect on index returns and it’s volatility in the Indian stock market using GARCH (1, 1) for Nifty 50, Nifty midcap 50 and Nifty smallcap 50 indices. The study period starts from 1st April, 2005 to 29th June, 2018. This study found a strong evidence of a positive weekend effect as well as a negative Tuesday effect across all the 3 indices. It is observed that the returns on Tuesday are lower than the returns on Monday. The study also found a positive weekend effect (except Nifty 50) as well as a negative Tuesday effect on return volatility for all these 3 indices. Like return, it is also observed that market is less volatile in Tuesday than Monday. In addition to this, the present study also revealed a negative Thursday effect on return (except Nifty 50) as well as a negative Friday effect on return for Nifty smallcap index only. It is concluded that Monday is a high risk and high return day whereas, Tuesday is a low risk and low return day in comparison to Monday. If traders can take higher risk they can earn higher return on Monday. The overall findings of the study suggest that the Indian market is not efficient and market can be predictable based on historical series. The findings of this study is valuable to both academicians as well as the market participants.
Highlights
The present study has investigated the day of the week and weekend effect on index returns and it’s volatility in the Indian stock market using GARCH (1, 1) for Nifty 50, Nifty midcap 50 and Nifty smallcap 50 indices
This study found a strong evidence of a positive weekend effect as well as a negative Tuesday effect across all the 3 indices
The stationarity of the each index series are checked by Dickey Fuller (DF), Augmented Dickey Fuller (ADF) and Phillips Peron (PP) unit root tests
Summary
Weak form of efficiency holds in the market when a trader failed to project the current price based on the information in the past price itself. This is the case when stock market follows random walk i.e. today price is equal to yesterday price and a random figure. Seasonality in the stock market violates the weak form of efficiency In this case market do not follow random walk and the price can be predictable based on seasonal pattern in the past series. Seasonality in the stock market denotes calendar anomalies i.e. a particular time in the day, a particular day in the week, a particular week in the month or a particular month in the year, and the average return is significantly higher/lower in comparison to remaining period. Weekend effect represents higher/lower return in Monday in comparison to remaining four trading days due to weekend effect
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
