Abstract
The Monday effect is a well know effect in some countries around the world. The Monday effect is the observation that stock returns on Monday are statically significantly lower than for the rest of the days of the week. There is no obvious fundamental reason behind this occurrence and if it actually exists it might be due to human behavioral patterns. This Monday effect observation originated in the U.S. several decades ago and it has since being observed in several other countries. In this article the occurrence of the Monday effect is analyzed in the mainland China equity market. It was found that for the period from 2011 to 2016 there was no statistically significant Monday effect but interestingly there are indications of a possible Thursday effect. This concept was tested with several market indexes covering the two major mainland China stock exchanges (Shanghai and Shenzhen). These indexes covered also a broad spectrum of company sizes. The ChiNext index, which is a Nasdaq like type of index for the Chinese market, was also included. In this article it was also tested and confirmed that the returns on Chinese equities, as expected, do not follow a normal distribution.
Highlights
Market anomalies could be defined as statistically significant events in the stock market that have no obvious justification by fundamentals
The returns of the five indexes on Monday were compared with the returns of the index for the rest of the days of the week using a Wilcoxon test, see table 2
The results seem to suggest that there is no significant Monday effect in the Mainland Stock market while there are some indications of a Thursday effect
Summary
Market anomalies could be defined as statistically significant events in the stock market that have no obvious justification by fundamentals. The stock market is influenced by investors behavior and human habits and such habits could conceivable have some effect on stock market results. In this article it is analyzed the so called Monday effect in China. The Chinese market is a good fit for this type of analysis given the high percentage of retail investors compared to institutional investors. This could potentially cause that behavioral patterns of individual investors would have a significant impact on the overall performance of the stock market
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