Structural Changes and the Day-of-the Week Effect in Indian Stock Market

Abstract

This paper examines the presence of the day-of-the-week effect on stock returns, trading volume and price volatility at the NSE during the period of 10 years from 1995-2005. To isolate the effect of the structural changes, particularly of the introduction of compulsory rolling settlement, a sub-sample period of three years from April 2002 to March 2005, is also taken. Both the stock prices (at indices level) and the trading volume are analyzed at level as well as in their differenced form. We observe that the Wednesday effect, which was found during earlier weekly settlement regime, has now disappeared. Monday and Tuesday returns are although consistently low; but during the recent sub-period these are not statistically different from the returns of the rest of the week. However, on Monday the average trading volume is significantly low and the price volatility is high consistently across the entire sample period. We also observe that the Friday returns on S&P CNX Nifty are significantly higher in comparison to that on CNX Nifty Junior