Once Upon a Time: The Day-of-the-Week Effect in German and US Stock Market Returns

26 Pages Posted: 14 Aug 2008 Last revised: 19 Mar 2009

See all articles by Jörg Prokop

Jörg Prokop

University of Oldenburg - Finance and Banking; ZenTra - Center for Transnational Studies

Date Written: August 10, 2008

Abstract

This paper studies the development of the day-of-the-week effect in German and US stock market returns over the past decades. Using an OLS regression approach, we analyse four major German stock market indices for abnormal returns on each trading day of the week, with the longest observation period ranging from 2007 back to the mid-1960s. Moreover, as prior studies indicate the existence of a relationship between the magnitude of the day-of-the-week anomaly and the time of the month at which it occurs, we also analyse the indices' return behaviour categorised by week of the month. The results are compared to those of prior studies, as well as to our own findings for a sample covering the US stock market. We find that for both markets, the leading equity indices, DAX and SP500, exhibit a strong Monday effect during the older sample periods, which is fading over time, reversing during the 1990s, and vanishing after the year 2000. However, regarding smaller stock market indices, our results for the German and for the US data differ substantially, indicating that there is no general parallel market behaviour with respect to this specific return anomaly. Finally, with respect to the more recent sample periods, none of the daily return anomalies observable between the 1960s and the 1980s seem to have persisted, suggesting an increase in informational efficiency of the respective markets over time.

Keywords: anomaly, day of the week, Monday, return, volatility, weekend

JEL Classification: G12, G14, G15

Suggested Citation

Prokop, Jörg, Once Upon a Time: The Day-of-the-Week Effect in German and US Stock Market Returns (August 10, 2008). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1222877 or http://dx.doi.org/10.2139/ssrn.1222877

Jörg Prokop (Contact Author)

University of Oldenburg - Finance and Banking ( email )

Germany

ZenTra - Center for Transnational Studies ( email )

Ammerländer Heerstraße 138
Oldenburg, 26131
Germany

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