Changes to the trading calendar and the day of the week effect in returns and volatility of the Saudi Stock Exchange
-
DOIhttp://dx.doi.org/10.21511/imfi.19(4).2022.13
-
Article InfoVolume 19 2022, Issue #4, pp. 160-170
- Cited by
- 303 Views
-
66 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Until June 29, 2013, the trading days of the Saudi Stock Exchange (TADAWUL) were from Sunday to Wednesday. From June 29, 2013, TADAWUL changed trading days and started trading from Sunday to Thursday. This paper investigates whether this change has impacted the day-of-the-week effect on returns and volatility of the Saudi Stock Exchange. After estimating several GARCH-type models, the EGARCH (2,2) model was selected for the analysis. The study found that the stock return on the week’s first trading day (Saturday) was positive during the previous trading calendar.
In contrast, the current trading calendar observed a positive stock return on the last trading day of the week (Thursday). Further, a negative volatility exists at the end of the week during the previous trading calendar. At the beginning of the week, there is a high degree of positive volatility during the current trading calendar. These results indicate that the behavior of stock returns is different between the two trading calendar regimes. In addition, the behavioral patterns on other trading days suggest that the Saudi stock market does not conform to the weak form of the efficient market hypothesis. The above findings indicate that investors in the Saudi stock market could devise trading rules to predict the market index and earn abnormal returns consistently.
- Keywords
-
JEL Classification (Paper profile tab)G10, G14, G23
-
References31
-
Tables3
-
Figures0
-
- Table 1. Test results for heteroscedasticity in returns
- Table 2. Selecting the model with the best fit
- Table 3. EGARCH (2, 2) mean and variance equation
-
- Abalala, T., & Sollis, R. (2015). The Saturday effect: an interesting anomaly in the Saudi stock market. Applied Economics, 47(58), 6317-6330.
- Aggarwal, R., & Rivoli, P. (1989). Seasonal and Day-of-the-Week Effects in Four Emerging Stock Markets. Financial Review, 24(4), 541-550.
- Agrawal, A., & Tandon, K. (1994). Anomalies or Illusions? Evidence from Stock Markets in Eighteen Countries. Journal of International Money and Finance, 13(1), 83-106.
- Akira, V. (1989). Conditional Heteroscedasticity in Time Series of Stock Returns: Evidence and Forecasts. The Journal of Business, 62(1), 55-80.
- Alexakis, P., & Xanthakis, M. (1995). Day of the week effect on the Greek stock market. Applied Financial Economics, 5(1), 43-50.
- Al-Loughani, N. E., Al-Saad, K. M., & Ali, M. M. (2005). The Holiday Effect and Stock Return In The Kuwait Stock Exchange. Journal of Global Competitiveness, 13(1&2), 81-91.
- Al-Loughani, N., & Chappell, D. (2001). Modelling the day-of-the-week effect in the Kuwait Stock Exchange: a nonlinear GARCH representation. Applied Financial Economics, 11(4), 353-359.
- Al-Saad, K., & Moosa, I. A. (2005). Seasonality in stock returns: evidence from an emerging market. Applied Financial Economics, 15(1), 63-71.
- Baillie, R. T., & DeGennaro, R. P. (1990). Stock returns and volatility. Journal of Financial and Quantitative Analysis, 25(2), 203-214.
- Balaban, E. (1995). Day of the week effects: new evidence from an emerging stock market. Applied Economics Letters, 2(5), 139-143.
- Campbell, J. Y., & Hentschel, L. (1992). No news is good news: An asymmetric model of changing volatility in stock returns. Journal of Financial Economics, 31(3), 281-318.
- Coutts, A., Kaplanidis, C., & Roberts, J. (2000). Security price anomalies in an emerging market: the case of the Athens Stock Exchange. Applied Financial Economics, 10(5), 561-571.
- Cross, F. (1973). The Behavior of Stock Prices on Fridays and Mondays. Financial Analysts Journal, 29(6), 67-69.
- Davidson, S., & Faff, R. (1999). Some additional Australian evidence on the day-of-the-week effect. Applied Economics Letters, 6(4), 247-249.
- French, K. R. (1980). Stock returns and the weekend effect. Journal of Financial Economics, 8(1), 55-69.
- French, K. R., Schwert, G. W., & Stambaugh, R. F. (1987). Expected stock returns and volatility. Journal of Financial Economics, 19(1), 3-29.
- Gibbons, M. R., & Hess, P. (1981). Day of the Week Effects and Asset Returns. The Journal of Business 54(4), 579.
- Glosten, L. R., Jagannathan, R., & Runkle, D. E. (1993). On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks. The Journal of Finance, 48(5), 1779-1801.
- Hamao, Y., Masulis, R. W., & Ng, V. (1990). Correlations in Price Changes and Volatility across International Stock Markets. Review of Financial Studies, 3(2), 281-307.
- Jaffe, J., & Westerfield, R. (1985). The weekend effect in common stock returns: the international evidence. The Journal of Finance, 40(2), 433-454.
- Keim, D. B., & Stambaugh, R. F. (1984). A further investigation of the weekend effect in stock returns. The Journal of Finance, 39(3), 819-835.
- Lakonishok, J., & Levi, M. (1982). Weekend effects on stock returns: a note. The Journal of Finance, 37(3), 883-889.
- Lakonishok, J., & Maberly, E. (1990). The Weekend Effect: Trading Patterns of Individual and Institutional Investors. The Journal of Finance, 45(1), 231-243.
- Mlambo, C., & Biekpe, N. (2006). Seasonal effects: Evidence from emerging African stock markets. South African Journal of Business Management, 37(3), 41-52.
- Oguzsoy, C. B., & Güven, S. (2003). Stock returns and the day-of-the-week effect in İstanbul Stock Exchange. Applied Economics, 35(8), 959-971.
- Rogalski, R. J. (1984). New findings regarding day-of-the-week returns over trading and non-trading periods: a note. The journal of finance, 39(5), 1603-1614.
- Saudi Stock Exchange (2016). Annual Statistical Report 2016.
- Seyyed, F. J., Abraham, A., & Al-Hajji, M. (2005). Seasonality in stock returns and volatility: The Ramadan effect. Research in International Business and Finance, 19(3), 374-383.
- Solnik, B., & Bousquet, L. (1990). Day-of-the-week effect on the Paris Bourse. Journal of Banking & Finance, 14(2-3), 461-468.
- Ulussever, T., Yumusak, I. G., & Kar, M. (2011). The Day-of-the-Week Effect in the Saudi Stock Exchange: A Non-Linear GARCH Analysis. Journal of Economic & Social Studies (JECOSS), 1(1), 9-23.
- Yakob, N. A., Beal, D., & Delpachitra, S. (2005). Seasonality in the Asia Pacific stock markets. Journal of Asset Management, 6(4), 298-318.