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SUNIL POSHAKWALE

m FINANCE INDIA
m Vol. X No. 3, September 1996
m PagesȄ 605-616
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e series of returns on BSENI are also tested for Ǯday of t e week

effectǯ. If t ere is no day of t e effect t en t e mean found at t e end of eac
day of t e week would be same.
e
able s ows t e mean returns and
t e standard deviation for eac day of week.


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Mean Return -0.09 0.10 -0.04 0.13 0.28
Standard Deviation 2.22 1.79 1.36 1.78 2.21
Range Maximum 20.64 12.90 9.37 27.33 10.65
Range Minimum -15.58 -9.76 -7.14 -6.11 -19.27

à As can be seen t at t e mean returns except for t e Monday and Wednesday

are positive. It can also be seen t at t e standard deviation is larger for t e
first and t e last days of t e week, w ic is almost similar to t e evidence
from ot er countries.
m
e ypot esis used is t at because Monday closing price entails t e
events of t ree days, t e standard deviation s ould be ig er compared to
t at of ot er days, w ile only significantly ig er dispersion for t is day
would also indicate t e effects of risk in determining daily returns (Jacobs
and Levy, 1988).
m In case of BSE t e ig level of dispersion for Monday seems to point out
t e risk effect on daily returns.
ere are also a few markets w ere t e
standard deviation for Monday is smaller t an t at for ot er days (Solnik
and Bousquet, 1990).
m In most of t ese studies it is implicitly assumed, along wit t e standard
deviation for Monday and low one for Friday, t at Monday returns are low
or negative as compared to Friday returns - w ic seems also to be t e
cause for t e BSE excepting t at standard deviation on Friday is not low.
m
e day of t e week effect seems to conform to t e familiar pattern
observed in ot er stock markets, according to w ic t e market as a
tendency to end eac week strong and start weak on Monday wit t e
exception of negative returns on Wednesday.
m From t e results it is evident t at t ere is weekend (Friday) effect on t e
returns from BSENI w ic supports t e presence of first order
autocorrelation and provides t e indication of non-random nature of stock
prices in t e BSE.
 

 


m
e assumption t at stock prices are random is basic to t e efficient
market ypot esis and capital asset pricing models.
is study as
presented evidence concentrating on t e weak form efficiency and on
t e day of week effect in t e Bombay Stock Exc ange under t e
consideration t at variance is time dependent.
m Moving from its traditional functioning to t at required by t e opening of
t e capital markets, t e BSE as presented different patterns of stock
returns and supports t e validity of day of t e week effect.
m
e frequency distribution of t e prices in BSE do not follow a normal or
uniform
m distribution w ic is also confirmed by t e non-parametric KS
est.
m
e results of runs test and serial correlation coefficients tests indicate
nonrandom nature of t e series and, t erefore, violation of weak form
efficiency in t e BSE.
m
e ot er null ypot esis t at t ere is no difference between t e returns
ac ieved on different days of t e week is also rejected as t ere is clear
evidence t at t e average returns are different on eac day of t e week.
m
e weekend effect is evident as t e returns ac ieved on Fridays are
significantly ig er compared to rest of t e days of t e week.
m However, t e results presented in t e study are not adjusted for
transaction costs. Nor ave t e results been adjusted for non-
sync roneous trading w ic may influence t e serial correlation
coefficients.
m
e implication of rejection of weak form efficiency for investors is t at
t ey cannot adopt a Ǯfair return for riskǯ strategy, by olding a well
diversified portfolio w ile investing in t e Indian stock market.
m W at will be t e appropriate investment strategy for an international
investor for investing in Indian market and ow efficiency/inefficiency
will influence is c oice of investments are t e issues wort
researc ing.
m Also t e day of t e week effect observed on t e BSE pose interesting
buy and old strategy issues.