Day of the Week Effects in Turkish Stock and Money Markets
50 Pages Posted: 28 Feb 2001
This study examines the daily seasonalities in emerging Turkish Stock and Money Markets. Within this framework, day-of-the-week-effects in overnight interest rate changes both in the Central Bank Interbank Money Market and the Istanbul Stock Exchange (ISE) Repo Market as well as in stock returns and liquidity at the ISE Stock Market are investigated.
Results have shown the existence of significant day-of-the-week-effects both in overnight interest rate changes and stock returns. Overnight interest rates significantly fall on Wednesdays and increase on Mondays relative to the previous days. At the stock market, returns are significantly higher in the second part of the week and lower in the first two days of the week. Seasonalities in volatility and liquidity across the week confirmed the prior findings. Dynamic trading strategies based on the daily seasonalities in stock returns are able to produce significantly higher returns than market return of a simple "buy and hold" strategy in some periods neglecting transaction costs.
Some evidences are documented for the relationship between the existence of day effect in overnight interest rates and Treasury Bill Auctions, institutional practices and the other factors which effect the liquidity conditions of the market creating the seasonality in liquidity.
Findings support the "settlement procedure" explanation for the day-of-the-week effect in stock returns due to the fact that significant differences and movements in stock returns, return/risk, and liquidity indicators are observed between different periods in which different settlement procedures are employed in the stock market. On the other hand, negative Monday returns disappear when the mean return of previous Friday is positive.
Finally, these results have shown the existence of significant day-of-the-week-effects both in overnight interest rate changes and stock returns which is promising excess return for portfolio managers, and indicate that regulatory bodies of the markets, institutional practices and public authorities have an important creative impact on the seasonalities in stock and money markets.
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By Li Ong