Patterns in Japanese Common Stock Returns: Day of the Week and Turn of the Year Effects

Abstract

Stock markets in the United States and foreign countries exhibit a strong weekly seasonal,1 an empirical regularity for which no theoretical explanation has been found. One's belief in this phenomenon would be strengthened if it is known to also occur in capital markets separated from those in the United States by distance, institutional arrangements, and culture. This paper extends the results found in [5] and more closely examines the to stock market returns for Japan. While we find a weekly seasonal in Japan, its nature is significantly different in a statistical sense from the American one. For example, the lowest mean return in Japan occurs on Tuesday?not Monday, as in the United States. Thus, while the day of the effect for American stocks has been casually called the weekend effect, it should not be referred to in this way for Japanese stocks. The next part of the paper examines causes for the unique Japanese seasonal. We investigate whether the results in Japan are associated with those in the United States, and, in particular, consider whether the low Tuesday return in Japan and the low Monday return in the United States are due to time zone differ? ences. The settlement process and the measurement error problem also are treated. We next consider the relationship between foreign exchange returns and stock market returns. The seasonal in daily foreign exchange returns does not offset the seasonal in daily stock market returns. Thus, both Japanese and American investors confront a of the week effect in the Japanese stock mar? ket. Our data also allow us to investigate the turn ofthe year effect. Japanese stock returns in January are significantly above the returns during the rest of the year. However, unlike some reports using U.S. data (see [12] and [13]), we find no interaction in Japan between the Monday effect and the January effect.