Day of the Week Effect in the Nepali capital market
By Rabindra Bhattarai
Calendar effect, day effect, weekend effect and seasonal effect are common in the international stock market. Various researches have proved that there is variation in return and volatility among the days in a week and seasons. A similar research conducted by Securities Research Center and Services (SRCS) Pvt. Ltd. has found that Nepali stock market too has been following similar trend. It has been found that the Nepali market is the most volatile on Sunday and this is the day of the week when the returns are the highest.
The study shows that the average Nepse index changed the highest (1.117 points) on Sunday and the lowest (0.094 points) on Wednesday. Similarly, daily return also reached the highest on Sunday and the lowest on Wednesday. The volatility in index return is the highest on Sunday and lowest on Tuesday. A similar result has been found in the volatility of the daily change in the Nepse index. This is the highest on Sunday and the lowest on Tuesday.
Conducted for the Nepse index of 695 days covering three years (one year of royal rule and one year each before and after that), the study has excluded the Friday transactions during the one year period before the direct rule of the king
The international studies in various stock markets have found varied results about the day effect. Halil Kiymaz and Hakan Berument (2003) had, after studying major market indexes in the world for the period of 1988 through 2002, reached the conclusion that the highest volatility occurs on Mondays in Germany and Japan, on Fridays in Canada and the United States, and on Thursdays in the United Kingdom. A similar study was made in the Chinese stock market by Lei Gao and Gerhard Kling (2005) and the conclusion was that the highest return can be achieved in the months of March and April while within the week it is achieved on Fridays.
Day of the week effect: Statistical results from the study |
Day |
Number of days |
Mean index |
Daily average change in Index (points) |
Daily average index return (%) |
Standard deviation of daily return |
Standard deviation of daily change in index |
Sunday |
94 |
372.370 |
1.117 |
0.283 |
0.995 |
4.050 |
Monday |
153 |
316.883 |
0.440 |
0.149 |
0.824 |
2.977 |
Tuesday |
147 |
311.842 |
0.198 |
0.066 |
0.741 |
2.703 |
Wednesday |
149 |
316.908 |
0.094 |
0.055 |
0.761 |
2.879 |
Thursday |
153 |
321.047 |
0.378 |
0.094 |
0.780 |
2.704 |
Source: Securities Research Center and Services P. Ltd. |
Chiaku Chukwuogor-Ndu (2006) in his paper covering 1997-2004 examined the financial markets' trends such as the annual returns, daily returns and volatility of returns in 15 emerging and developed European financial markets. The study showed that seven of the European financial markets experienced negative returns on Monday and seven others experience negative returns on Wednesday.
Hakan Berument and Halil Kiymaz (2001) studied the day of the week effect on stock market volatility by using the S&P 500 market index during the period of January 1973 to October 1997. The findings showed that the day of the week effect is present in both volatility and return equations. While the highest and the lowest returns are observed on Wednesday and Monday, the highest and the lowest volatility are observed on Friday and Wednesday, respectively.
