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Day of the Week Effect of Stock Returns: Empirical Evidence from Colombo Stock Exchange

Authors:

SC Thushara ,

Lecturer, Department of Commerce and Financial Management, Faculty of Commerce and Management Studies, University of Kelaniya, LK
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Prabath Perera

Assistant Lecturer, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, LK
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Abstract

Many empirical studies have been carried out both in the developed and developing economies to test the presence of anomalies in stock returns and volatility. The most commonly tested seasonal anomalies are day of the week effect, month of the year effect, holiday effect, Monday effect and Friday effect. Previous studies strongly support the existence of seasonal anomalies. Existence of seasonal anomalies let the investors to earn abnormal returns by trading on past information. This study attempts to test whether the day of the week effect is present in the stock returns of the Colombo Stock Exchange. For this purpose, stock returns based on ASPI for the period of 2002 to 2011 with 2390 observation are taken into account. The day of the week effect hypothesis is tested using both OLS model and GARCH (1,1) model. The research provides strong evidence to support the day of the week effect. Furthermore, there is a Thursday, Wednesday and Friday effect in the stock returns. Thus, investors can earn abnormal returns by trading on a strategy based on past information. It is recommended to buy stock on Mondays and Tuesdays and sell them on Wednesdays, Thursdays and Fridays to earn abnormal returns.

DOI: http://dx.doi.org/10.4038/kjm.v1i2.6451

Kelaniya Journal of Management Vol.1(2) 2012:16-27

How to Cite: Thushara, S. & Perera, P., (2014). Day of the Week Effect of Stock Returns: Empirical Evidence from Colombo Stock Exchange. Kelaniya Journal of Management. 1(2), pp.16–27. DOI: http://doi.org/10.4038/kjm.v1i2.6451
Published on 24 Jan 2014.
Peer Reviewed

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