Abstract
This study assesses the influence of error distributional assumption on appearance or disappearance of day-of-the-week effects in returns and volatility using the Nigerian stock exchange (NSE-30). The Gaussian, Student-t, and the Generalized error distribution were incorporated in the GARCH (2,1) and EGARCH (2,1) models. Result reveals that day-of-the-week effects are sensitive to error distribution. Our finding also shows that evidence of good or bad news in volatility does not only depend on the asymmetric model but also the choice of the error distribution. Thus, this study will provide adequate knowledge to policy makers, investors and researchers about day-of-the-week effect in stock markets.
Highlights
Day-of-the-week effect in the Nigeria stock exchange market has been widely studied and documented in finance literature
Will these error distributions show consistencies or otherwise if mounted on the same model? To answer this question is the central objective of this study which is to investigate whether the appearance or disappearance of the day-of-the-week effects varies under different error distributional assumption
While the Augmented Dickey-Fuller (ADF) test is used to test for all returns in the stock market under the null hypothesis of a unit root against the hypothesis of stationarity, the KPSS has a null of stationarity of a series around either mean or a linear trend; and the alternative assumes that a series is non-stationary due to presence of a unit root
Summary
Day-of-the-week effect in the Nigeria stock exchange market has been widely studied and documented in finance literature. Osarumwense, O.: Day-of-the-week effect in the Nigerian Stock Market Returns and Volatility: Does the Distributional Assumptions Influence Disappearance?. Most researchers have investigated the day-of-the-week in mean and/or volatility under different distributional assumptions. Will these error distributions show consistencies or otherwise if mounted on the same model? To answer this question is the central objective of this study which is to investigate whether the appearance or disappearance of the day-of-the-week effects varies under different error distributional assumption.
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