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Empirical Investigation of the day-of-the-week effect on the return and conditional variance using EGARCH model : The case study of the H-shares
Author(s)
Date Issued
2009
Series/Report no.
Working paper series
ISBN
9789881844316
Type
Working Paper
Abstract
The purpose of this paper is to investigate the day-of-the-week effect on both the returns and volatility
of the H-shares (Hang Seng China Enterprises) Index in Hong Kong. To do this, we applied the
exponential GARCH method to the daily closing price of the H-share index from 3 January 2000 to 1
August 2008. The empirical results indicate that there are significant, positive Monday and Friday
effects on returns. However, after adjusting for market risks that vary across the days of the week, only
the Monday effect remains. We further check the day-of-the-week effect on volatility and find Monday
has the highest effect, which is consistent with the theory of availability of information. Together, these
two sets of results imply that the Monday effects on risk-adjusted returns may be a reward for a higher
conditional volatility on that day. Nevertheless, after adjusting for transaction costs, the abnormal
returns for Monday become negligible.
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Woo_Chan_Sept2009.pdf
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