Journal of Commerce and Accounting Research

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Individual Investor Trading Activity and Day-Of-The-Week Anomaly – Indian Evidence


Affiliations
1 Assistant Professor, ICFAI Business School, IFHE-Hyderabad, Telangana, India
2 Professor, Institute of Public Enterprise, Hyderabad, Telangana, India
     

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This paper examines the day-of-the-week anomaly in the Indian stock market. Accaording to efficient market hypothesis, the average returns should be constant all days of the week. The return generation process theory proposes that when calendar time proposition is considered, the return on Monday should be three times that of Friday. On the other hand, when trading time proposition is considered, the returns on all days of the week should be similar. However, prior research on day-of-the-week anomaly provides substantial evidence that the returns on Monday are negative. To empirically test the return generating process theories from the perspective of individual investors in the Indian stock market, we obtain daily buy and sell turnover of individual investors for a period of 16 years. Using the models suggested by French (1980), we test this hypothesis. We perform empirical tests for the full sample period and four sub-sample periods. Our results indicate significant average negative returns on Monday. The sell turnover on Monday is less than the sell turnover on Friday. At the same time, the buy turnover is also negative on Monday. It appears that individual investors stay away and are not much active in the stock markets on Mondays. Moreover, the supply and demand for stocks from individual investors appear to be lower on Mondays. One of the reasons for this may be the individual investors’ dependence on broker calls to buy or sell securities in the Indian stock market. We also observe that individual investors take active participation on Tuesdays and Wednesdays, when they receive calls from brokers.

Keywords

Efficient Market Hypothesis, Stock Market Anomaly, Day-Of-The-Week Effect, Monday Effect, Individual Investors.
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  • Individual Investor Trading Activity and Day-Of-The-Week Anomaly – Indian Evidence

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Authors

Sager Reddy Adavelli
Assistant Professor, ICFAI Business School, IFHE-Hyderabad, Telangana, India
Rama Krishna Yelamanchili
Professor, Institute of Public Enterprise, Hyderabad, Telangana, India

Abstract


This paper examines the day-of-the-week anomaly in the Indian stock market. Accaording to efficient market hypothesis, the average returns should be constant all days of the week. The return generation process theory proposes that when calendar time proposition is considered, the return on Monday should be three times that of Friday. On the other hand, when trading time proposition is considered, the returns on all days of the week should be similar. However, prior research on day-of-the-week anomaly provides substantial evidence that the returns on Monday are negative. To empirically test the return generating process theories from the perspective of individual investors in the Indian stock market, we obtain daily buy and sell turnover of individual investors for a period of 16 years. Using the models suggested by French (1980), we test this hypothesis. We perform empirical tests for the full sample period and four sub-sample periods. Our results indicate significant average negative returns on Monday. The sell turnover on Monday is less than the sell turnover on Friday. At the same time, the buy turnover is also negative on Monday. It appears that individual investors stay away and are not much active in the stock markets on Mondays. Moreover, the supply and demand for stocks from individual investors appear to be lower on Mondays. One of the reasons for this may be the individual investors’ dependence on broker calls to buy or sell securities in the Indian stock market. We also observe that individual investors take active participation on Tuesdays and Wednesdays, when they receive calls from brokers.

Keywords


Efficient Market Hypothesis, Stock Market Anomaly, Day-Of-The-Week Effect, Monday Effect, Individual Investors.

References