A Reexamination of the Day-of-the-Week Effect

on the Indian Stock Markets

Ramesh Chander*, Kiran Mehta** and Renuka Sharma***

In informationally efficient markets, investors and analysts are not likely to predict stock price movements
consistently. Still, market participants make concerted efforts to earn abnormal returns discerning some
anomalous pattern in the stock price movements. This study empirically scrutinizes whether this pattern
yields abnormal return consistently for any specific day of the week. Four market series, namely, the BSE
Sensex, BSE 100, S&P CNX Nifty, and S&P CNX 500 were considered on a daily basis for a
10-year period. The entire series is divided into two sub-periods, viz., (1) pre-rolling settlement period,
April 1997-December 2001; and (2) post-rolling settlement period, January 2002-March 2007. Contrary
to the earlier findings, this study documents the lowest Friday returns on the BSE in the pre-rolling
settlement period. The findings recorded for post-rolling settlement period were in harmony for those
obtained elsewhere in the sense that Friday returns were the highest and those on Monday were the
lowest to document credible evidence for the day-of-the-week effect. It may be inferred that the arbitrage
opportunities existed have not only subsided consequent to the introduction of the compulsory rolling
settlement but also the pattern of market movements have become even more akin to that experienced in
the developed capital markets. On the whole, the study documents the presence of the day-of-the-week
effect in the Indian stock markets.

Introduction
A number of studies have been conducted to document the extensive evidence of the
randomness in stock price movements across the globe. In recent times, researchers and
academicians have found strong empirical evidences to support Efficient Market
Hypothesis (EMH) which states that no investor, reacting to new information disclosure,
can earn abnormal returns consistently. It is based on the premise that any release of new
information is available to all the investors equitably and the same is instantaneously
incorporated into stock prices. The market mechanism for new information adjustment
is presumed to be so swift to maintain independent and random movement in stock prices.
Studies have quite extensively analyzed and documented evidence in support of this
randomness in stock prices and market series in India.1 The kind of randomness identified
in these and other such studies denies any encumbrance in the flow of information and
does not assist investors to find any predictable pattern in the stock price movements.
* Reader, Department of Management, Kurukshetra University, Kurukshetra, India. He is the corresponding author.
E-mail: rameshchandra2005@rediffmail.com
* * Faculty, Department of Business Administration, Chaudhary Devi Lal University, Sirsa, Haryana, India.
E-mail: ujjawalakiran@rediffmail.com
*** Faculty, Department of Business Administration, Chaudhary Devi Lal University, Sirsa, Haryana, India.
E-mail: bhavyarenuka@rediffmail.com
1
For instance, see Fama (1965), Barua and Raghunathan (1987), Chaudhary (1991), Belgaumi (1995), and
Fama and French (1988).

© 2008 The Icfai University Press. All Rights Reserved.

A Reexamination of the Day-of-the-Week Effect on the Indian Stock Markets 5
 However, in spite of the strong evidences in support of the highly efficient market
mechanism, there are instances when the stock price movements enable the investors to
earn abnormal returns discerning some pattern in the stock price movements. This kind
of anomalous behavior of stock prices is also studied and documented by a series of studies
which seems to be incongruous to the hypothesis of EMH. These studies have challenged
the efficient market notion and identified certain parameters as P/E ratios, dividend yield,
size, seasonality, etc., to empower investors with some predictive power to locate patterns
in the stock price movements and thus to harvest extra returns.
The present study empirically scrutinizes whether the anomalous pattern of stock
prices yield abnormal returns consistently. As pointed out earlier, available literature has
identified a varied kind of anomalies in the price movement on the bourses but the study
under consideration hovers around the most prominent calender anomaly referred to as
day-of-the-week effect. The day-of-the-week anomaly implies a noticeable trend/pattern
in the average returns on some specific day(s) of the week. It is based on the premise that
market returns follow a cyclic pattern to violate the weak form of efficiency logic and that
by monitoring past market movement series, market participants can earn extraordinary
returns regularly.

Review of Literature
There is an abundance of literature available to make investors skeptical of the efficient
market theory. These studies have documented various types of anomalies and the study
under consideration describes only those studies pertaining to the ‘day-of-the-week’
effect. Fields (1931) was the first one who found Monday effect on the US stock market.
Cross (1973) noted the day-of-the-weak effect by tracing higher mean returns on Friday
in comparison to that on Monday of S&P 500 index for 17 years (1953-70) study period.
French (1980) further demonstrated the same findings as documented by Cross, but for
a period ranging from 1953 to 1977. Lakonishok and Levi (1982) documented the impact
of trading settlement system on the weekend effect. Jaffe and Westerfield (1985) further
investigated the weekend effect in four markets, i.e., Australian, Canadian, Japanese, and
the UK and documented the existence of day-of-the-week effect in the Japanese and
Australian markets.
Haris (1986) studied the day-of-the-week effect in the international markets and
confirmed the presence of negative returns on Monday in comparison to other days of the
week. Dyl and Maberly (1986), Gay and Kim (1987), and Flannery and Protopapadakis
(1988) found similar results in the US market for T-bills, commodity markets, and futures
markets. Board and Sutcliffe (1988) documented the weekend effect in the UK but
reported withdrawal of anomalous pattern of stock returns over a period of time.
Chaudhary (1991) found Friday to have the highest returns and Monday with the lowest
and negative return on the BSE Sensex. Similarly, Agarwal and Tandon (1994) also showed
unequal distribution of stock returns and variability in the dependentness of stock returns
on different week days.
Poshakwale (1996) noted nonrandomness in the return series for different week days
for a seven-year (1987 to 1994) period. Arumugam (1998-99) found Friday returns

6 The Icfai Journal of Applied Finance, Vol. 14, No. 4, 2008

significantly positive with no significant negative returns for Mondays except in the bear
phase. Karmakar and Chakarborty (2000) documented evidence in support of significant
positive return on Friday as compared to other week days. Amanulla and Thiripalraju
(2001) found weekend effect from their sub-sample period during the period of ban on
carry-forward (badla) transactions and noticed consistent positive returns on Wednesday.
Mehdian and Perry (2001) also found Monday effect in large cap stocks when analyzed over
a period of time.
In a more recent study, Nath and Dalvi (2005) documented the impact of introduction
of rolling settlement in India on the daily returns and noted that Mondays and Fridays
were critically significant trading days. Even after compulsory rolling settlement, Friday
still continues to be the most significant trading day of the week for return propagation.
Gupta (2006) further documented evidence in support of the significant high returns on
Fridays and the lowest for Mondays over three years (2002-05) period.
Wickremasinghe (2007) studied the day-of-the-week effect and January effect on Colombo
Stock Exchange (CSE) and the outcome demonstrated statistically insignificant difference
in returns for week days.
Thus, literature on subject can be synthesized that a majority of studies have supported
the day-of-the-week effect in the Indian stock markets. As a corollary to this, Friday
returns were considered the highest while that of Monday were noticed the lowest and
negative compared to other week days. This return differentiation appears to be more
visible during the bearish phase of market movements. In the bull phase, such
differentiation across week days return subsided considerably in the investment literature.
Studies have even questioned the sustainability of day-of-the-week effect in the long run
to keep academic debate and the curiosity of market participants live and interactive on
the subject. In this regard, the present study also revisits the sustainability of the day of
week to see whether market participants could devise profitable trading strategies
consistently.

Objectives of the Study

As pointed out earlier, this study focuses on tracing out non-random pattern in the stock
indices return series resulting in abnormal return for trading days in a given week.
In particular, the present study intends to accomplish the following objectives:
• To identify non-random pattern in the stock index return series for different
trading days in a week;
• Is anomalous/irrational pattern in the stock returns, if any, is stable and can the
investors strategize this evidence for abnormal returns consistently? and
• Whether compulsory rolling settlement has any impact on the anomalous
behavior of stock prices and as a consequence, does arbitrage (across indices and
markets) yield significant returns on week day(s)?

A Reexamination of the Day-of-the-Week Effect on the Indian Stock Markets 7

Hypotheses
In order to attain the above stated objectives, the study under consideration intends to
examine the validity of the following null hypotheses:
H1: That, return is uniformly distributed for all week days such that mean return series depicts
random movement for various trading days (µ1, µ2, µ3, …) such that:
µ1 = µ2 = µ3 = µ4 = µ5
H2: That, in the absence of H1, anomalous pattern is gradually subsides in the long run to
reinforce randomness in the sense that trading strategies based on anomalous behavior fail
to yield consistent abnormal returns.

H3: That, arbitrage across the markets and the indices does not yield abnormal returns,
especially after the introduction of compulsory rolling settlement, in the Indian markets.

Research Methodology
In order to test the validity of the null hypotheses outlined above, the study considered
four market indices, viz., the BSE Sensex, BSE 100, S&P CNX Nifty, and S&P CNX 500.
The closing values of these market series were obtained for a 10-year period from April
1997 to March 2007. In order to examine the impact of rolling settlement, the study
period was divided into two sub-periods, each of five years duration, viz., (1) pre-rolling
settlement period—April 1997-December 2001; and (2) post-rolling settlement period—
January 2002-March 2007. The study period is quite comprehensive to make generalizations
based on daily observations. For the purpose of analysis, data was collected from the
PROWESS, an electronic database of the Center for Monitoring Indian Economy (CMIE),
Mumbai for the above stated market series to obtain returns for each trading day.
The return of a given market series on a given day is obtained as:
RI = ln (It / It–1)
where,
RI = Daily return on the Index (I),
ln = Natural log of underlying market series (I),
It = Closing value of a given index (I) on a specific trading day (t), and
It–1 = Closing value of the given index (I) on preceding trading day (t–1)
Thus, this study encompasses 2,478 observations for the entire study period comprising
of 1,229 observations in the pre-rolling settlement period and 1,249 observations for the
post-rolling settlement period. It is further clarified that mean return on Tuesday is based
on closing value of a given market series (I) on Tuesday and its closing value on Monday.
However, Friday being the last trading day of the week so return on Monday is based on
closing value of market series under consideration on Monday and its corresponding value
on Friday. In the case of public holiday(s), the return on market series (indices) were
computed on the basis of its closing value on the day before public holiday(s) and its
closing value on the day after public holiday(s).

8 The Icfai Journal of Applied Finance, Vol. 14, No. 4, 2008

 The descriptive statistics, as mean (simple arithmetic average), standard deviation,
skewness, and kurtosis for all the trading days of the week, used in the study to discern
day-of-the-week effect were obtained from the Software Packages for Social Sciences
(SPSS). The results thus obtained were scanned through analytical statistics to examine
the validity of null hypotheses stated above. For obvious reasons, Kruskal-Wallis
H-statistics is used to examine the statistical significance of difference in mean returns
for each trading day of the week. This non-parametric test statistics is particularly
preferred to examine the validity of null hypotheses in view of the presumably random
behavior of underlying market series. The Kruskal-Wallis H-statistics is obtained in the
framework given below:

k
H  12 / n * ( n  1)r I 1
1
2
/ n I  3 * ( n  1)

where,
nI = Total number of observations in a market series (I) for each trading day,
rI = Sum of ranks in each trading day in a given market series (I),
n = Sum of all observations in a market series, and
K = The number of independent samples
Needless to add, Kruskal-Wallis H test follows xI2 distribution with (k–1) degrees of
freedom. Therefore, underlying xI2 values are compared with Kruskal-Wallis values to
examine the validity of null hypotheses for 0.05 and 0.01 levels of significance.

Results and Discussion

As noted earlier, results reported in the study under consideration dwells on four major
market indices on the two main Indian bourses as:

Day-of-the-Week Effect on the Bombay Stock Exchange

As pointed out earlier, day-of-the-week effect intends to identify significant bias for
trading days in a week in terms of mean return. Available literature indicates positive
return bias for Friday’s and negative bias on the Mondays (Chaudhary, 1991). Studies such
as Board and Scutcliffe (1988) noted withdrawal of this bias in the long run. In order to
examine the pattern of return on the Bombay Stock Exchange, this study preferred two
BSE indices—BSE Sensex and BSE 100. These indices may be constructed to be fairly
representative for stock trading activity on the exchange in view of their visibility (BSE
Sensex) and underlying breadth (BSE 100).

Analysis of Sensex-Based Daily Returns

Table 1 describes the sensex-based mean return during the study period with summary
statistics, viz., standard deviation, skewness and kurtosis in order to understand the
behavior pattern of mean returns for each trading day along with the Kruskal-Wallis
H test statistics. The results reveal positive mean returns on Mondays and Wednesdays

A Reexamination of the Day-of-the-Week Effect on the Indian Stock Markets 9

 Table 1: Sensex-Based Daily Returns for All Trading Days—April 1997-March 2007
Kruskal-
Week Days Monday Tuesday Wednesday Thursday Friday Total
Wallis
(A) Before Compulsory Rolling Settlement—April 1997-December 2001
Observations 245 247 249 250 238 1,229
Mean 0.00098 –0.000075 0.0007 –0.00020 –0.00138 –0.00001
Std. Deviation 0.00912 0.007090 0.0076 0.00740 0.00763 – 14.666**
Skewness –0.48210 –0.854180 0.3872 0.04511 –0.00665 –0.91054
Kurtosis 1.33436 3.015760 1.1575 0.34643 1.99918 –
(B) After Compulsory Rolling Settlement—January 2002-March 2007
Observations 252 251 248 250 248 1,249
Mean 0.000047 0.00040 0.0003 0.00062 0.00092 0.002262
Std. Deviation 0.006740 0.00557 0.0050 0.00602 0.00609 – 2.592
Skewness –2.109300 0.45882 –0.4403 –0.48450 –0.25949 –2.8348
Kurtosis 12.745700 6.10754 0.9915 4.50162 2.94490 –
(C) For the Whole Study Period—April 1997-March 2007
Observations 497 498 497 500 486 2,478
Mean 0.00051 0.00016 0.0005 0.00021 –0.00021 0.001145
Std. Deviation 0.00801 0.00637 0.0064 0.00675 0.00698 – 4.654
Skewness –0.93190 –0.45338 0.2488 –0.17860 –0.19951 –1.51466
Kurtosis 4.60443 4.31063 1.7855 1.71248 2.31506 –
Note: * Significant at 0.05; ** Significant at 0.01 levels.

in the pre-rolling settlement period while the same for other trading days was negative.
Spread of mean return in this period was considered statistically significant at 0.01 level
to invalidate H1. However, a sort of contradiction is noticed in this context with regard
to the mean returns on Monday and Friday compared to the earlier findings in this regard.
Monday returns were also considered more variable compared to the other trading days’
returns. On the other hand, the mean return series under reference was found negatively
skewed on all the trading days except on Wednesdays and Thursdays.
Thus, a wide differentiation was noted for spread and distribution of mean returns on
the BSE for all the trading days before the introduction of the rolling settlement.
In contrast to the pre-rolling settlement period, a weekend effect of the kind documented
by earlier studies (Gupta, 2006) was noticed in the post-settlement period as mean returns
were the highest on Fridays and the lowest on Mondays with a higher incidence of
variability. But the same were skewed to the right on Tuesdays compared to other week
days. On the whole, spread and distribution of mean returns were not found statistically
significant in the post-rolling settlement period.
For the whole study period, i.e., April 1997-March 2007, the results revealed positive
mean returns on all trading days except on Friday. Spread of mean return was wider on
Mondays compared to other trading days. These returns were negatively skewed on all the
trading days except for Wednesday in the period under investigation. On the whole, spread
of mean return was not considered significant to depict any pattern or “effect” for this

10 The Icfai Journal of Applied Finance, Vol. 14, No. 4, 2008

study period. It is interesting to note that the kind of spread and variability in return
distribution noticed before the introduction of rolling settlement has disappeared
considerably in the post-rolling settlement period. It may be inferred that market
movement has smoothened after the introduction of rolling settlement. The graphic
presentation (Figure 1) of the results in point further establishes and endorses this
viewpoint. Thus, the results reported above corroborate the earlier findings with regard
to the withdrawal of weekend effect (Board and Scutcliffe, 1988) in the long run.
Figure 1: Sensex-based Daily Returns, April 1997-March 2007

0.0015

0.001

0.0005
Mean Returns

0
1997-07
Monday Tuesday Wednesday Thursday Friday 1997-02
–0.0005
2002-07

–0.001

–0.0015

–0.002

Trading Days

Analysis of BSE 100-Based Daily Returns

BSE 100 index is relatively broader and account for a larger market capitalization
compared to the BSE Sensex and thus is more representative of daily market movements.
Table 2 reports the results obtained in this regard for return variability, skewness,
and kurtosis statistics. A highest (positive) incidence of daily mean returns was
experienced on Wednesdays and the lowest (negative) incidence was noticed on Fridays
in the pre-rolling settlement period. Incidence of return variability was highest on
Mondays when compared to other trading days. These returns were noticed leptokurtic
distributed during the observation period. The mean return differentiation identified
above was found statistically significant (0.01 level) in terms of Kruskal-Wallis test
statistics to indicate weekend bias.
On the other hand, the incidence of mean return under reference moved opposite and
contradictory compared to the same in the pre-rolling settlement period. In this
observation period, Friday returns were the highest and positive. These returns were a bit
skewed to the left for all the trading days except for Tuesdays. Further, these were
leptokurtic distributed except on Wednesdays and were relatively less peaked. But, this
return differentiation was not considered statistically significant. It points that the

A Reexamination of the Day-of-the-Week Effect on the Indian Stock Markets 11

anomalous return behavior discerned in the pre-rolling settlement phase had dissipated
and the returns behavior has been smoothened. For the observation period encompassing
the whole study, a weekend effect was noted for the lowest and negative Friday return while
that of Monday was positive (highest) and was relatively more variable. Returns reported in
this period were negatively skewed and that on Mondays and Tuesdays were leptokurtic
distributed. On the whole, the incidence and the spread of mean returns under reference
were considered statistically significant (0.05 level) to document the peculiar weekend effect
(Table 2).
Table 2: BSE 100-Based Daily Returns for All Trading Days, April 1997-March 2007
Kruskal-
Week Days Monday Tuesday Wednesday Thursday Friday Total
Wallis
(A) Before Compulsory Rolling Settlement, April 1997-December 2001
Observations 245 251 249 249 238 1,232
Mean 0.000371 –0.000030 0.000790 –0.00035 –0.00156 –0.00078
Std. Deviation 0.019259 0.007240 0.007863 0.00755 0.008227 – 16.589**
Skewness –10.275100 –0.843990 0.252674 0.02212 –0.30802 –11.15240
Kurtosis 138.179000 3.978600 1.113030 0.51128 1.72278 –
(B) After Compulsory Rolling Settlement, January 2002-March 2007
Observations 252 251 248 250 248 1,249
Mean 0.000066 0.00032 0.000282 0.00061 0.000984 0.002269
Std. Deviation 0.006980 0.00573 0.005130 0.00600 0.006294 – 2.609
Skewness –2.092990 0.37877 –0.732380 –0.64498 –0.376930 –3.46852
Kurtosis 11.673380 5.82258 1.695466 5.35254 3.921021 –
(C) For the Whole Study Period, April 1997-March 2007
Observations 497 502 497 499 486 2,481
Mean 0.000216 0.00015 0.000537 0.00013 –0.000260 0.00077
Std. Deviation 0.014392 0.00653 0.006640 0.00683 0.007407 – 11.651*
Skewness –12.156900 –0.46480 0.087762 –0.25106 –0.454660 –13.2397
Kurtosis 216.848800 4.90524 1.910336 2.02605 2.543324 –
Note: * Significant at 0.05 level; ** Significant at 0.01 level.
It is interesting to note that Friday returns drawing attention for being significantly
lower in the pre-rolling settlement period and for being positive and the highest in the
post-rolling settlement period. Therefore, it may be inferred that diverse trade settlement
cycles on the two premier exchanges (the BSE and NSE) in the pre-rolling settlement
contributed to the lowest Friday earnings in the pre-rolling settlement period. After the
introduction of the rolling settlement, week-end effect noticed earlier has undergone
a shift to indicate smoothened market movements for all the trading days in a week.
As a result, market variability and volatility has decreased considerably. Further, the
results of this study indicate that Monday and Wednesday are the other prominent days
for positive return propagation during the study period (Figure 2).
On the whole, mean returns both in relation to the BSE Sensex and BSE 100 indices
were noticed lowest on the Fridays in pre-rolling settlement phase and the same were

12 The Icfai Journal of Applied Finance, Vol. 14, No. 4, 2008

 Figure 2: BSE 100-Based Daily Returns—April 1997-March 2007

0.0015

0.001

0.0005
Mean Returns

0 1997-07
1997-02
–0.0005 Monday Tuesday Wednesday Thursday Friday
2002-07
–0.001

–0.0015

–0.002
Trading Days

lowest on Mondays in the post-rolling settlement period. In the post-rolling settlement

period, Friday returns were the highest for both the indices. This return differentiation
was considered statistically significant at 0.01 level for both the indices in terms of
Krushkal-Wallis test statistics. It can be deduced from this that both the indices moved
more rationally and logically on the Bombay Stock Exchange after the introduction of
rolling settlement on the Bombay Stock Exchange.

Day-of-the-Week Effect on the National Stock Exchange

As the trade settlement cycle differed (before rolling settlement) on the two major Indian
bourses (the BSE and the NSE), the evidence on the day-of-week effect on the NSE too
is expected to yield useful readings to explain significantly higher Wednesday return.
In addition, the NSE’s initiatives to new technology adoption for market microstructure
reforms has smoothened the market movements. As a result, mean returns are expected
to be evenly distributed on the NSE compared to that on the BSE. Moreover, different
initiating and terminating settlement days on the two exchanges also might have caused
perceptible shift in the trading positions before the introduction of the rolling settlement.
For vibrant market mechanism, the NSE has witnessed a significant rise in the trading
volume. When these aspects are considered, the study of NSE indices series is highly called
for to better comprehend the day-of-the-week effect.

Analysis of CNX Nifty 50-Based Daily Returns

Compared to the Sensex, CNX Nifty is broad-based index and thus account for higher
trading volume. As inferred above, the mean return in terms of CNX Nifty index series
is expected to be more evenly distributed with lesser variability and spread. For deeper
investigation, the results were obtained for both—two sub-periods and for the entire study
period. Table 3 (Panel A) indicates the highest positive incidence of mean return on

A Reexamination of the Day-of-the-Week Effect on the Indian Stock Markets 13

 Table 3: S&P CNX Nifty-Based Daily Returns for All Trading Days
April 1997-March 2007
Kruskal-
Week Days Monday Tuesday Wednesday Thursday Friday Total
Wallis
(A) Before Compulsory Rolling Settlement, April 1997-December 2001
Observations 246 248 249 255 236 1,234
Mean –0.00067 –0.000824 0.002742 –0.000170 –0.000999 0.000072
Std. Dev. 0.00846 0.007003 0.007514 0.006964 0.006917 – 37.21**
Skewness –0.33028 –1.013550 0.455003 0.075313 –0.110006 –0.923530
Kurtosis 1.61416 4.182756 1.162798 0.709875 2.003603 –
(B) After Compulsory Rolling Settlement, January 2002-March 2007
Observations 252 251 248 250 248 1,249
Mean 0.000062 0.000328 0.000206 0.000654 0.000816 0.002065
Std. Dev. 0.007030 0.005663 0.005217 0.006297 0.006431 – 3.69
Skewness –2.509530 0.548558 –0.368480 –0.668370 –0.720112 –3.717930
Kurtosis 16.466900 5.762646 1.421420 3.421278 4.781611 –
(C) For the Whole Study Period, April 1997-March 2007
Observations 498 499 497 505 484 2,483
Mean –0.00030 –0.000245 0.001477 0.000236 –0.000069 0.001097
Std. Dev. 0.00777 0.006384 0.006587 0.006648 0.006727 – 15.95
Skewness –1.17048 –0.525880 0.440421 –0.254650 –0.407538 –1.918130
Kurtosis 6.56531 5.166407 1.905007 1.705829 2.959414 –
Note: * Significant at 0.05 level; ** Significant at 0.01 level.

Wednesday (first trading day) while the same was found negative for all other trading days
with the lowest incidence on Friday. But the mean returns on Wednesdays and Thursdays
were positively skewed. The variability in this return series was noted highest on Monday
while Tuesday returns were leptokurtic distributed. The return differentiation across week
days was considered statistically significant (0.01 level). On the whole, the results in the
pre-rolling settlement period signify mid-of-the-week or Wednesday effect.
After the introduction of compulsory rolling settlement, an even pattern of mean
returns in terms of S&P Nifty index for each trading day was noticed. During this period,
though index returns were positive for all week days, the highest incidence was noticed
on Friday while the same was the lowest on Monday. The mean returns under reference
were skewed to the left for all trading days except for Tuesdays. Monday returns were also
considered more variable compared to other trading days’ return. The spread and
distribution of these returns further suggest that the same were leptokurtic except for
Wednesday. However, this return differentiation in the post-rolling settlement period was
not considered statistically insignificant in terms of Kruskal-Wallis test statistics.
For the period encompassing the present study, Wednesday returns were noticed highest
(positive) compared to other week days while the same were lowest (negative) on Friday.

14 The Icfai Journal of Applied Finance, Vol. 14, No. 4, 2008

As far as variability of return is concerned, mean returns were more volatile on Mondays
compared to other trading day returns. These were negatively skewed except on
Wednesdays. All in all, return differentiation identified above was considered statistically
significant incidence (0.01 level) to document evidence to support day-of-the-week
anomaly in relation to the CNX Nifty index series (Figure 3).
Figure 3: S&P CNX Nifty-Based Daily Returns—April 1997-March 2007

0.003
0.0025
0.002
0.0015
Mean Returns

0.001 1997-07
0.0005 1997-02
2002-07
0
–0.0005
–0.001
Monday Tuesday Wednesday Thursday Friday
–0.0015

Trading Days

As the positive incidence of mean return on Wednesday in the pre-rolling settlement

phase is quite obvious from Figure 3, it can be cited as a case of strategic investment
decision for abnormal gains. In this regard, it may be inferred that market participants
might have netted their positions on Tuesday on the NSE and on Friday on the BSE and
have renewed their trading positions on Wednesday on both the exchanges. Though the
pattern of returns under reference in the post-rolling settlement period has been
smoothened and noticed to have been evenly distributed CNX Nifty index series for all
the trading days, but a pattern for the same delineated in the pre-rolling settlement period
was so robust that has encompassed the smooth movement in index returns under
reference in the post-settlement period and has even persisted for the entire study period.
The results, thus, obtained for S&P CNX Nifty has been further studied in relation to a
broader market proxy for generalization.

Analysis of S&P CNX 500-Based Daily Returns

In order to have a broader investigation on return behavior on the NSE, a broader market
proxy, S&P CNX 500, is considered. This index is broad-based in terms of wider
capitalization and market depth for better understanding of the underlying market
mechanics. The index is the mother of all such indices and is being considered a true
representative of the stock markets movements. Essentially, the composition of
S&P CNX 500 is as enduring and versatile as to include all the segments of national
economy. The results obtained for S&P CNX 500 further strengthen generalizations to
describe the day-of-the-week effect. Table 4 presents the results obtained in this regard.

A Reexamination of the Day-of-the-Week Effect on the Indian Stock Markets 15

 Table 4: S&P CNX 500-Based Daily Returns for All Trading Days,
April 1997-March 2007
Kruskal-
Week Days Monday Tuesday Wednesday Thursday Friday Total
Wallis
(A) Before Compulsory Rolling Settlement, April 1997-December 2001
Observations 244 247 250 253 241 1,235
Mean 0.000238 –0.00036 0.00195 –0.00026 –0.001259 0.00031
Std. Deviation 0.009526 0.00701 0.00768 0.00727 0.008078 – 22.52**
Skewness –0.544900 –0.82194 –0.01311 0.12176 –0.426699 –1.68490
Kurtosis 1.393151 3.91478 0.46834 0.60544 3.573633 –
(B) After Compulsory Rolling Settlement, January 2002-March 2007
Observations 252 251 248 250 248 1,249
Mean 0.000178 0.000186 0.00029 0.00071 0.000987 0.00235
Std. Deviation 0.007093 0.005792 0.00531 0.00600 0.006343 – 6.187
Skewness –2.536601 0.212612 –0.62564 –0.89446 –1.070403 –4.9145
Kurtosis 15.403950 5.693482 2.86847 5.16302 8.063068 –
(C) For the Whole Study Period, April 1997-March 2007
Observations 496 498 498 503 489 2,484
Mean 0.000207 –0.000085 0.00112 0.00022 –0.000120 0.00135
Std. Deviation 0.008370 0.006424 0.00665 0.00668 0.007330 – 10.285
Skewness –1.169260 –0.472540 –0.03671 –0.28320 –0.736840 –2.69860
Kurtosis 5.356145 4.781982 1.40808 2.04405 4.935458 –
Note: * Significant at 0.05 level, ** Significant at 0.01 level.

The results reveal the highest (positive) mean return in relation to S&P CNX 500 index
on Wednesdays while the same was lowest on Fridays (negative) compared to other week
days before the introduction of the rolling settlement. The returns under reference were
relatively more variable on Mondays compared to other trading days. Except on Thursdays,
these returns were negatively skewed and were platykurtic in distribution on Tuesdays and
Fridays. This spread and distribution was found statistically significant at 0.01 level
signifying the day-of-week effect. As usual, a positive bias was noted in the underlying
return series in the post-rolling settlement phase with a highest incidence on Mondays
and lowest on Fridays. Except on Tuesdays, returns in this period were also negatively
skewed and alike to the pre-rolling settlement phase; Monday returns were highly variable
and platykurtic. However, this differentiation in spread and distribution of mean returns
under reference was not found statistically significant.
Wednesday returns in terms of S&P CNX 500 were positive and highest in the
encompassing study period while the same were negative and lowest on Fridays. As noted
earlier, return variability was noticed to be highest on Mondays in this time frame too.
These returns were negatively skewed, while the spread and distribution indicated
platykurtic pattern on Wednesdays and Thursdays. This differentiation was noted to be
statistically significant at 0.05 level to invalidate null hypothesis in this regard.
These results are depicted in Figure 4.

16 The Icfai Journal of Applied Finance, Vol. 14, No. 4, 2008

 Figure 4: S&P CNX 500-Based Daily Returns—April 1997-March 2007

0.0025

0.002

0.0015
Mean Returns

0.001
1997-07
0.0005
1997-02
0 2002-07
–0.0005 Monday Tuesday Wednesday Thursday Friday
–0.001

–0.0015
Trading Days

On the whole, mean daily returns in terms of S&P CNX 500 index indicated positive
overall bias in both sub-periods and for the encompassing study period. But the same were
larger in magnitude in the post-rolling settlement period. Therefore, it can be inferred
that broader market proxy (CNX 500 index) generated higher returns differentiation
implying that some of the smaller size firms (not included in other indices) might have
yielded higher returns. Here, it is worth noting the robustness of Wednesday returns
(mid-of-the-week effect) in the pre-rolling settlement period trickling down to the entire
study period despite the fact that the same was conspicuously invisible in the post-rolling
settlement period. This phenomenon was prominent in terms of CNX Nifty based returns
as compared to CNX 500 index which were not considered statistically significant
(at 0.01 level). On the whole, daily mean returns on the NSE were more consistent and
evenly distributed for all the trading days during the study period.

A Comparison Across Bourses

On the whole, the present study documented evidence on the day-of-week effect on two
premiere stock exchanges—the NSE and the BSE—for a 10-year study period. Before the
introduction of rolling settlement, market participants, particularly the day traders, were
inclined to square off their positions on Fridays on the BSE to renew similar positions on
the NSE. Likewise, positions were switched from the NSE to BSE on Tuesday—being the
last trading day on the NSE. Contrary to the earlier findings, the results reported in this
study documented end-of-the-week effect on the BSE for lowest Friday returns in the
pre-rolling settlement period. These results were so robust to persist in the long run,
for the entire study period. It proved difficult to find any credible exposition to the lowest
Friday return on the NSE in the same time period except for investor psychosis and
sentiments. Coupled with larger trading volumes, investor sentiments on Friday being the last
trading day on the BSE were used to be depressing (tantamount to widespread stock selling)

A Reexamination of the Day-of-the-Week Effect on the Indian Stock Markets 17

to exert similar price movement on the NSE too. Akin to these tendencies, returns were
highest on Monday on the BSE and on Wednesday on the NSE, first trading days in the
trade settlement cycle, in the pre-settlement period (Table 5).
Table 5: Day-of-the-Week Effect on the Indian Stock Exchanges
April 1997-March 2007
Indices BSE Sensex BSE 100 S&P CNX Nifty S&P CNX 500
(A) Pre-rolling Settlement, April 1997-December 2001
Highest trading day
Monday Thursday Wednesday Wednesday
return on
Lowest trading day
Friday Friday Friday Friday
return on
Status of Ho
At 0.01 level Accepted Accepted Accepted Accepted
At 0.05 level Accepted Accepted Accepted Accepted
(B) Post-rolling Settlement, January 2002-March 2007
Highest trading day
Friday Friday Friday Friday
return on
Lowest trading day
Monday Monday Monday Monday
return on
Status of Ho
At 0.01 level Accepted Accepted Accepted Accepted
At 0.05 level Accepted Accepted Accepted Accepted
(C) Entire Sample Period, April 1997-March 2007
Highest trading day
Monday Wednesday Wednesday Wednesday
return on
Lowest trading day
Friday Friday Friday Friday
return on
Status of Ho
At 0.01 level Accepted Accepted Accepted Accepted
At 0.05 level Accepted Accepted Accepted Accepted

Conclusion
On the whole, this study documents evidence on the day-of-the-week effect on two
premiere stock exchanges—the NSE and the BSE—for a 10-year study period.
The findings recorded for the post-rolling settlement period, January 2002-March 2007,
were in harmony with those recorded across the globe as the Friday returns were highest
and the same were lowest on Monday to document credible evidence for day-of-the-week
effect. It may be inferred that arbitrage opportunities across the markets existed before the
rolling settlement have disappeared consequent to the introduction of rolling settlement.
The introduction of rolling settlement had caused a discernible shift in market
movements such that the pattern of stock returns were aligned to that noticed for the
developed capital markets across the globe. Further, the pattern of returns discerned on
the Indian bourses in the pre-rolling settlement period had persisted for the period
encompassing the study period.

18 The Icfai Journal of Applied Finance, Vol. 14, No. 4, 2008

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