Print Reference This Reddit This

Day Of Week Effects In Karachi Stock Market


This paper examines the day-of-the-week effect in the Karachi stock market in order to get the information whether this anomaly exist or not. Stock exchanges play an important role in a vibrant economy. Accordingly, the purpose of this paper is to test for the existence of daily stock market anomalies in the Karachi stock exchange (KSE), in an attempt to check the level of market efficiency in this emerging capital market. The data includes the daily market index returns covering the period from January 2000 to January 2011. The findings show that Monday returns are negative, and lower than the returns on the rest of the trading days which suggest that the returns in the last trading day are as low as in the first trading day. Furthermore, the results show that market return volatility is greatly influenced by the bad news than good news, a result similar to other markets.

Accordingly, it might be argued that the day of the week effect is present in the case of Karachi stock exchange.

Keywords: day of the week effect, volatility, stock market anomalies, emerging market,

An Analysis of the Day of Week Effects in Karachi Stock Market


The day-of-the-week effect continues to be one of the more interesting stock market anomalies to study because the significant day-of-the-week effects would be very valuable for the development of profitable trading strategies. Investors could buy stocks on days with abnormally low returns and sell stocks on days with abnormally high returns.

A number of variables which predict the stock returns are not based on an asset pricing model and more explicitly on the capital asset pricing model (CAPM). When variables like firm size, book-to-market ratio and price-to-earnings ratio have descriptive power, we talk about market anomalies.

In an efficient financial market, market prices of the stocks reveal all the available information about the value or the stock’s return is indifferent in each trading day. But the observable fact of the day of the week effects made a different return in each particular day in a week. This is an abnormal return which can affect investor’s decisions of investment strategy, portfolio selection, and profit management. Every investor is expecting high return and low risk investment. Actually, investor doesn’t exactly know the exact risk and return on his/her investment. So, before doing an investment they will conduct investment analysis. Investment analysis could be done by researching the existing anomalies, stock’s fundamentals, and global economic condition. The day of the week effects is the most well known anomaly in capital markets. This anomaly is also known as weekend effect. Observation of the day of the week effects show there is difference return on each day in a week. The day of the week effects caused by market sentiment that effected investors become irrational in capital market. . In other words, study of calendar anomaly reveals that investor can use the existing anomalies for predicting stock price movement in certain days.

This phenomenon contradicts the efficient market theory; where investors can adjust their buying and selling strategies in order to increase their returns. It has been observed that average market return in the first trading day and in some countries in the second trading day is negative or at least lower than the rest of trading days. The most satisfactory explanation that has been given for this phenomenon is that usually the most unfavorable news appears during the weekends. These unfavorable news influence the majority of the investors negatively, causing them to sell on the coming first trading day. The sale of stocks increases the supply causing returns to decline on that specific day. In addition, many analysts believe that the investors’ psychology can play an important role in causing this anomaly; as investors feel pessimistic on the first trading day as they regard it as the worst day of the week, because it is the first working day of the week, and optimistic on the last trading day. They proceed on sales and purchases, respectively. For the second trading day negative returns, the explanation is that bad news of the weekend affecting the USA’s market, influence negatively some markets lagged one day. However, the above explanations are not fully adequate to explain the phenomenon of the day of the week anomaly. Based on the literature, no explanation given is fully adequate, which makes this market anomaly the subject for continuous research.

Tests Based on Linear Regressions

Empirical research that investigates the daily anomaly using simple methods or OLS regressions among the early articles which analyze a calendar anomaly is that of Cross (1973) in which he has found that performance was better on Fridays than on Mondays and that the changes on Monday partially depend on the changes on Friday.

French (1980) the study reveals systematically negative returns on Monday, which is typical for the US market day-of-the-week effect originally. The results confirm that the negative Monday effect is purely a weekend effect, not a closed-market effect. French interprets this anomaly as a proof for market inefficiency.

Keim and Stambaugh (1984) The Monday effect is confirmed for the entire sample period. (1928-1982)Wong, Hui and Chan (1992)) investigate the day-of-the-week effect on South-East Asian countries including, Malaysia, Hong Kong, Singapore, Taiwan and Thailand found Significant positive Wednesday effects in Singapore, Taiwan and Hong Kong and significant positive Friday returns for Singapore, Malaysia and Thailand, and Saturday for Taiwan.

Arsad and Coutts (1997) conduct a research on calendar anomalies OLS provides significant negative Monday returns for six out of twelve counties. Tuesday Returns are also significant negative during the period, but only for two sub-periods, which shows that they are not persistent. The highest significant returns are observed on Friday, in six sub-periods. Wednesday positive returns are also verified as persistent, while Thursday positive returns are present in four sub-periods, although they are found significant for the whole period.

Brooks and Persand (2001) examine the evidence in five Southeast Asian stock markets: Thailand, Taiwan, South Korea, Malaysia, and the Philippines. Results of the OLS indicate that both Thailand and Malaysia have significant positive Monday effects and significant negative Tuesday effects. Taiwan has a negative Wednesday effect, while Malaysia has a positive Thursday effect.

Literature review

In recent years remarkable efforts has been done with empirical studies on documenting unexpected or anomalous regularities in the security rate of return. An event considered as anomaly when the event is hard to explain rationally with existing theories or illogical assumptions are needed to explain the current paradigm. There are two kinds of anomalies: firm’s characteristic anomaly and calendar anomaly. (Mulyadi2, 20. Aug 2009)There are seasonal anomalies related to the time of day (Harris, 1986), the day of the week, the time of month (Ariel, 1987) and the turn of the year (Lakonishok & Smidt, 1988). An empirical study analyzes relationship between firm’s characteristic and return that a large capitalization firm resulting in higher return than small capitalization firm. (W.Banz, 1981) Found abnormal return in small capitalization firm. These patterns show that there are significant departures from market efficiency hypothesis and that the economic forces generating share returns are more sophisticated than efficient markets and multiplicative random walk models would tend to indicate. Great attempts have been made in previous studies as noted before; some research has been done to testing the difference of time pattern in stock price. First research about the day of the week effects in US conducted by (Gibbons & Hess, 1981). With sample period from 1962 until 1978, and using S&P 500 and CRSP indices. (Jaffe & Westerfield, 1985) Has revealed the day of the week effects anomaly in four international stock markets (UK, Japan, Canada, and Australia). In UK and Canada, lowest return happened on Monday. While in Japan and Australia is on Tuesday. Jaffe & Westerfield,( 1985) documented new evidence for the negative Tuesday effect.

L. Condoyanni,( 1987) has observed this anomaly in six countries Canada, UK, Australia, France, Japan, and Singapore (in period 1969 until 1984). Their result confirmed there is Monday negative return in Canada and UK. And there is Tuesday negative return in France, Japan, Australia, and Singapore. Their research proved this anomaly is different for market in one region/continent. Aggarwal & Rivoli,( 1989) has found those four emerging markets in Asia: Hong Kong, Singapore, Malaysia, and Philippines exhibit negative returns on Tuesday. (Barone, 1990) Has found negative return on Tuesday on the Milan Stock Exchange. There is evidence to suggest that ‘Tuesday effect’ in Far Eastern and European markets is partially caused by those markets following the poor overnight performance of (Monday) Wall Street Research by (Lakonishok & Smidt, 1988) also documented Monday negative return in US capital market. In 1997, Arsad and Coutts doing research in this anomaly using data from year 1935 to 1994 using FT30 index. They also found Monday’s return is significantly negative compared to another day. (Brook & Persand, 1999)Brooks and Persand are doing research other day of the week effects in emerging markets in 2001. They research on Taiwan, South Korea, Philippines, Malaysia, and Thailand. In Thailand and Malaysia, there is significant positive return on Monday and negative return on Tuesday. In Taiwan, there is negative return on Wednesday.

Later more evidence has been found for the day of the week effects in emerging markets. The research was done on 11 developed countries. The results of the research showed negative return on Monday in six countries and positive return for five other countries. (Ajayi, 2004) The results in this study show that while the day-of-the-weekend effect is not present in the majority of emerging stock markets have studied some emerging stock markets do exhibit strong day-of-the-week effects even after accounting for conditional market risk. Basher and Sadorsky in 2006while researching all emerging markets in the world. They found the day of the week effects in three countries (Philippines, Pakistan, and Taiwan) from 21 countries they are researching. Taiwan has Friday positive effect, Pakistan has Tuesday negative effect, and Philippines have Tuesday positive effect.

(Anwar, 2009)Has seen this anomaly in three emerging markets showing positive abnormal return on Friday in Indonesia, because there is no negative abnormal return on Monday in Indonesia. In Malaysia there is Friday positive In Singapore, There is no abnormal return on Monday and Friday.

(Agathee, 2008) Investigated the day of the week effects in Mauritian stock market. The study shows that the Friday returns appeared to be higher relative to other trading days. In contrast to the findings of Gibbons and Hess (1981) Mills and Coutts (1995), and Arsad and Coutts (1997).

The study also shows that high Friday returns compared to the other days the mean returns shows lower returns on Tuesdays.

(Premchaiswadi, 2010) Concluded a significant Day-of-the-Week effect on the Stock Exchange of Thailand .thus can be used as an analysis tool to maximize their expected return by taking advantage of calendar anomalies in decision making process of their portfolio management as well as to forecast stock market trends, which can assist them in their profit maximization






Franses and Paap (2000)



Positive Wednesday; lower volatility on Monday and Wednesday; higher on Friday; overall DOTW effects in returns and volatility

Steeley (2001)



Not in returns

Berument and Kiymaz (2001)



Positive Tuesday, Wednesday and Friday; lower volatility on Wednesday; higher on Friday

Alt, Fortin and Weinberger (2002)


OLS w/ multiplicity effect corrections

Negative Monday; overall DOTW effect

Bayar and Kan (2002)



Positive Wednesday, Tuesday (at 10% level)

Draper and Paudyal (2002)


OLS w/ additional variables

Negative Monday

Kiymaz and Berument (2003)


OLS AR and GARCH-M(1,1)

Negative Monday; negative volatility on Monday and Tuesday

Cabello and Ortiz (2004)



Negative Monday; positive Friday

Chukwuogor-Ndu (2006)


OLS, Kruskal-Wallis and Levene

Negative Monday; positive Friday; overall DOTW effect

Savva, Osborn and Gill (2006)



Not in returns; positive volatility on Thursday; negative on Friday

Elango and Al Macki (2008)


OLS and Kruskal-Wallis Test

Positive Wednesday

Need help with your literature review?

Our qualified researchers are here to help. Click on the button below to find out more:

Literature Review Service

Related Content

In addition to the example literature review above we also have a range of free study materials to help you with your own dissertation: