Calendar Effects in International Stock Markets Economics Case Study

Test of Day of the Week Effect: Calendar Effects in International Stock Markets
BEFM022 Quantitative Research Methods
Individual Assignment
Dr. Jane Shen
Date
1. Abstract
Data from the NASDAQ Composite (^IXIC) covering January 2015 to December 2019 was used to test the week effect data. Calendar effects are estimated in a regression framework. A review of related literature examines calendar effects on different stock market effects. Results of the t-statistic for the intercept show that the average return from Tuesday to Friday is significantly greater than zero. However, the results of the t-statistic for the slope coefficient on the Monday dummy variable show that the average return on Monday is not significantly less than the average return on the other trading days.
2. Introduction
Calendar effects suppose that certain or times of a year, including days, weeks, or months there are abnormally high or lower returns in the market indexes. Calendar anomalies suggest that the markets are less efficient, but there are other explanations, such as the delay in settlement of transactions. However, recent studies suggest that some of the calendar anomalies may be disappearing. Specification of the regression model influences interpretations and conclusions made on the calendar effects in stock returns. On Mondays, negative returns are mostly associated with the non-trading period from close Friday to open Monday (Jaisinghani, 2016). Research on seasonality in U.S. bond and equity markets and this phenomenon has mostly been investigated, focusing more on the "day of the week" effect, specifically the "Monday effect" and the "January effect".
The research objective is to evaluate whether the week calendar effect for the five years January 2015 to December 2019 is present, and there is the analysis of the calendar anomaly. The data in this research is the daily closing prices from the U.S. Nasdaq composite index. There is the calculation of the returns in the index. Plastun et al. (2019) highlighted an absence of calendar anomalies in the U.S. equity market from the year 2010.
The Nasdaq composite index's findings show that the p-value is higher than 0.05 (> 0.05) and not statistically significant, which indicates we fail to reject the null hypothesis as there is evidence for this, and there is no Monday effect. This means we retain the null hypothesis and reject the alternative hypothesis. We can only reject the null or fail to reject it. The results contrast with other empirical studies on the U.S. stock markets, but research also shows that increasing evidence of the effects disappears.
The other remaining parts of the research paper are organized as follows; section 3 discusses the literature on calendar anomalies, including the test of the day of the week effect. Section 4 is the data presentation, while section 5 focuses on the methodology. Section 6 reports and analyses interpretations of the results, while Section 7 reports the research's summary and conclusion.
3. Literature review
Extensive literature highlights variations in returns within days of the week, months, and holidays. In contrast, a stock index's performance in a day is often linked to the previous day and weekly performance. Ther...