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

Authors: K.N. Badhani, Naliniprava Tripathy

Addresses: Institute of Rural Management, Anand, Gujarat, India. ' Indian Institute of Management, Shillong, Meghalaya, India

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.

DOI: 10.1504/IJBEM.2010.029742

International Journal of Business and Emerging Markets, 2010 Vol.2 No.1, pp.23 - 42

Published online: 01 Dec 2009 *

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