The day-of-the-week effect and conditional volatility: Sensitivity of error distributional assumptions

H. Kent Baker, Abdul Rahman and Samir Saadi

Review of Financial Economics, 2008, vol. 17, issue 4, 280-295

Abstract: We test for reliable evidence of the day-of-the-week effect on both the mean and volatility for the S&P/TSX Canadian return index. Unlike previous studies, we permit several specifications for the error distribution -- GARCH normal, Student's t, generalized error distribution, and double exponential distribution. Unlike other studies, we find that the day-of-the-week effect in both mean and conditional volatility is sensitive to the particular specification of the underlying distributions. We also find that using a regression analysis assuming a Student's t distribution is a better way to investigate this effect. Our evidence demonstrates the apparent fragility of previous empirical studies on calendar anomalies. Thus, our results serve as a warning that with financial data, the error distributional assumptions are critical to correctly identifying empirical regularities in the data.

Keywords: Day-of-the-week effect Volatility GARCH; Error distributional assumptions (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:17:y:2008:i:4:p:280-295

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