Anomaly or rationality: an empirical study on explaining the day-of-the-week effect for S&P CNX Nifty index in India

K.N. Badhani and Naliniprava Tripathy

International Journal of Business and Emerging Markets, 2010, vol. 2, issue 1, 23-42

Abstract: This paper examines the behaviour of Nifty returns across the days-of-the-week during the different settlement regimes from 1995 to 2007. During the fixed-day weekly settlement system, inflated returns are observed on Wednesday, the first day of the settlement cycle. However, this Wednesday-effect vanishes when adjustment is made for the settlement-lag. The behaviour of market is rational rather than anomalous and it is appropriately adjusting the stock prices to cover the interest for the delay in settlement. Market follows the trading-period hypothesis in making such adjustments. After the implementation of the rolling settlement system, no day-of-the-week effect is found in returns.

Keywords: day-of-the-week effect; settlement regimes; fixed-day settlements; rolling settlements; trading-period hypothesis; calendar-period hypothesis; Standard & Poor's; S&P CNX Nifty index; India; stock exchanges; market cycles; emerging markets. (search for similar items in EconPapers)
Date: 2010
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