A RESEARCH REPORT ON SESONALITY IN INDIAN

STOCK MARKET

A Dissertation Submitted In Partial Fulfillment Of The Requirements For
MBA Degree Of Bangalore University


Submitted By

PRASHANTH P.B
Reg. No 03XQCM6073


Under The Guidance Of
Dr. T.V. NARASIMHA RAO
Professor, MPBIM
(Internal Guide)












03%,5/$,167,787(2)0$1$*(0(17
$662&,$7(%+$5$7,<$9,'<$%+$9$1
43, RaceCourseRoad, BANGALORI
7HO 2238298, 080 -2238963
200SBatch)






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2

DECLARATION


I hereby declare that the project work embodied in this dissertation titled A
Research Report on Sesonality in Indian stock market has been carried
out by me under the guidance and supervision of Dr. T.V. Narasimha Rao,
Professor (Internal Guide), M.P.Birla Institute of Management, Bangalore.

I also declare that this dissertation has not been submitted to any other
university/ Institution for the award of any other Degree/Diploma.





Place: Bangalore (Prashanth P.B)
Date: 17
th
June, 2005 Reg. No: 03XQCM6073













Principals Certificate



I hereby certify that this dissertation is a bonafide research work undertaken
and completed by Ms. Prashanth P B under the guidance and supervision of
Dr. T.V. Narasimha Rao (Internal Guide) MPBIM, Bangalore.




Place: Bangalore (Dr. N.S. Malavalli)
Date: Principal MPBIM,
Bangalore




Guide Certificate

This to certify that this report titled A Research Report on Sesonality in
Indian stock market has been prepared by Ms. Prashanth P.B, Student
Executive, M P Birla Institute of Management in partial fulfillment of the
award of the degree of Master of Business Administration at Bangalore
University, under my guidance and supervision.

This report or a similar report on this topic has not been submitted for any
other examination and does not form a part of any other course undergone
by the candidate.





Place: Bangalore (Dr T.V. Narasimha Rao)
Date:17-06-2005 Professor, MPBIM
Bangalore









ACKNOWLEDGEMENT

I sincerely thank Dr. Nagesh Malavalli (Principal), M.P.Birla
Institute of Management, Bangalore for granting me the permission to
do this Dissertation Project.

I would like to express my immense gratitude to Dr. T.V. Narasimha
Rao, M.P.Birla Institute of Management, Bangalore for his guidance,
continuous encouragement and valuable suggestions at every stage of
the project.

I extend my deep sense of gratitude to all my family and friends who
have directly or indirectly encouraged and helped me to complete this
project successfully.

I would like to extend my thanks to all the unseen hands that have
made this project possible.


Place: Bangalore (Prashanth P.B)
Date: 17
th
June 2005 03XQCM603




CHAPTERS CONTENTS PAGE NOS



EXECUTIVE SUMMARY


1
INTRODUCTION 2-28
1.1 Problem statement
3
1.2 Background of the study
4
1.3 Justification and Significance
4
1.4 Objectives of the study
5
1.5 Hypothesis
6
1.6 Theoretical background the study
8

2

REVIEW OF LITERATURE
29-37

3

RESEARCH METHODOLOGY
38-41
4.1 Study Design 38
4.2 Types of Data 38
4.3 Sample Frame 38
4.4 Sample Technique 38
4.5 Data Gathering Procedures 38
4.6 Research Techniques 39
4.7 Statistical Method 40
4.8 Scope of the study 41
4.9 Limitation of the study 41
4
DATA ANALYSIS AND INTERPRETATION
42-44
5
CONCLUSIONS
45
6

ANNEXURES


6.1 Bibliography 46
6.2 Data
List of Tables

TABLE NO

TITLE

PAGE NOS
1
Constituents list of S&P CNX NIFTY
16
2
Analysis of Variance from April 2000 to
March 2005
42
3
Analysis of Variance from Oct 2002 to March
2005
42
4
Analysis of Variance from April 2000 to Sep
2002
42
5
Result of F-Test
43
6
Result of Z-Test
43
7
Computation of Mean Returns
44
8
Computation of Standard Deviation
44





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Abstract

This study empirically analyzes the pattern of daily common stock returns and
tests for the presence of the day-of-the-week effect in the Indian Stock
Market. The objective of this paper is to examine the day-of-the-week effect
in the Indian Stock Market. The paper in particular studies the day-of-the-
week-effect with respect to the settlement system followed. The daily closing
price data on the S&P Nifty Index for the period April 2000-March 2005 has
been used in the study. The first step was testing of the null hypothesis that
the mean returns on all trading days of the week are not equal using F- test.
The null hypothesis that the means returns are not equal across all trading
days was true at 5% significance level. Then second part involved testing of
the null hypothesis that the mean returns on Monday and Friday are not equal
using Z- test. The null hypothesis that the mean returns on Monday and Friday
are not equal was true at 5% significance level.


















CHAPTER 1
Introduction




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Introduction
The day of the week effect refers to the observation that equity returns are not
independent of the day of the week. This effect was first documented by
Osborne(1962) and has subsequently been examined in numerous studies.
Such empirical observations have been mainly verified in the USA. The last
trading days of the week, particularly Friday, are characterised by positive and
substantially positive returns, while Monday, the first day of the week, and
differs from other days, even producing negative returns (Cross, 1973;
Lakonishok and Levi, 1982; Hirsch, 1986). Such an effect also seems to be
present in the equity markets of other countries such as Canada, Japan and
Australia where the same pattern as in USA is repeated. In other equity
markets such as Japan and Australia negative returns have been observed on
Tuesday also.
The equity markets across many countries seem to exhibit the day-of-the-
week effect. Studies have also been conducted to identify the causes behind
the patterns observed. Institutional features of the national stock markets, such
as settlement procedures and in particular, delays between trading and
settlement in the stocks, pricing misquotes and measurement errors,
specialists behaviour, or dividend patterns have been put forward as the main
reasons for such an effect. However none of these reasons have been
conclusively proved to be the cause of the effect. Explanations of the day-of-
the-week effect based on human nature have also been put forward to explain
the patterns observed (Jacobs and Levy, 1988). The human behaviour of
disclosing good news quickly on the weekdays and waiting for the weekend to
disclose the bad news so as to allow the market the weekend to absorb the
shock, have been explanations provided for the day-of-the-week effect.
The human behaviour of disclosing good news quickly on the weekdays and
waiting for the weekend to disclose the bad news so as to allow the market the

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weekend to absorb the shock, have been explanations provided for the day-of-
the-week effect. This paper presents the findings of a study on various aspects
of the behavior of share prices on both the National Stock Exchanges. It
presents an empirical analysis of day-of-the week effects in the benchmark
indices of the National Stock Exchange.
Problem Statement
The testing for market anomalies in stock returns has become an active field
of research in empirical finance and has been receiving attention from not
only in academic journals but also in the financial press. Among the more
well-known anomalies are the size effect, the January effect and the day-of-
the week effect. The day of the week effect is a phenomenon that constitutes a
form of anomaly of the efficient capital markets theory. According to this
phenomenon, the average daily return of the market is not the same for all
days of the week, as we would expect on the basis of the efficient market
theory.
This research aims an empirical analysis of week effects in the benchmark
indices of the National Stock Exchange
Background of the study
There is an evidence suggests that stock prices can be predicted with a fair
degree of reliability. Two competing explanations have been offered for such
behavior. Proponents of EMH (e.g. Fama and French [1995]) maintain that
such predictability results from time-varying equilibrium expected returns
generated by rational pricing in an efficient market that compensates for the
level of risk undertaken. Critics of EMH (e.g. La Porta, Lakonishok, Shliefer,
and Vishny [1997]) argue that the predictability of stock returns reflects the
psychological factors, social movements, noise trading, and fashions or "fads"

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of irrational investors in a speculative market. The question about whether
predictability of returns represents rational variations in expected returns or
arises due to irrational speculative deviations from theoretical values has
provided the impetus for fervent intellectual inquiries in the recent years.

Justification and Significance
In recent years the testing for market anomalies in stock returns has become
an active field of research in empirical finance and has been receiving
attention from not only in academic journals but also in the financial press.
Among the more well-known anomalies are the size effect, the January effect
and the day-of-the week effect. The day of the week effect is a phenomenon
that constitutes a form of anomaly of the efficient capital markets theory.
According to this phenomenon, the average daily return of the market is not
the same for all days of the week, as we would expect on the basis of the
efficient market theory.
Earlier studies have found the existence of the day of the week effect not only
in the USA and other developed markets but also in the emerging markets like
Malaysia, Hong Kong, Turkey). For most of the western economies, (U.S.A.,
U.K., Canada) empirical results have shown that on Mondays the market has
statistically significant negative returns while on Fridays statistically
significant positive returns. In other markets such as Japan, Australia,
Singapore, Turkey and France the highest negative returns appear on
Tuesdays.





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Purpose and Objective of study
Th e p u r p o s e o f t h e st u d y i s t he an al ys is of p a tt e r ns in d ail y c om mon
sto c k re turn s a nd da y- of -the w e e k e ffe ct s i n t h e be nc hm ar k in di c e s of t h e
N at i ona l Stock Exch a ng e Ma n y a ut h or s h av e c on c l u d e d fro m t h e
e xiste n ce of t he Day of the Week Effect and ot he r c al e n d a r a no mal i e s
t h at th e c a pit al mar k et s a re i neffi c ie nt . T h i s w ou l d b e of sp e c ial rel ev a nc e ,
b ec a u se d e s pit e i nc r e asi ng atte n ti on t o t h e I nd i a n s t oc k ma r ke t , little
e mpi ri c al a nal ysi s ha s be e n p er f or me d on t he ca p it al ma r k e t s i n I n di a .
Hypothesis
Day of the week effect in Indian stock
According to this phenomenon, the average daily return of the market is not
same for all days of the week
H
0
: Return
Monday
= Return
Tuesday
= Return
Wednesday
= Return
Thursday
= Return
Friday

H
1
:Return
Monday
5HWXUQ
Tuesday
5HWXUQ
Wednesday
5HWXUQ
Thursday
5HWXUQ
Friday

The hypothesis is two tailed and the hypothesis is tested for 5% level of
significance
There is a belief that there is a selling pressure on Friday due to the weekend
and everybody is under pressure to square their positions. To test this
perception the following hypothesis that is mean returns are equal across
Monday and Friday.
H
0
: Return
Monday
= Return
Friday

H
1
: Return
Monday
5HWXUQ
Friday
The hypothesis is two tailed and the hypothesis is tested for 5% level of
significance

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THEORETICAL BACKGROUND TO THE STUDY
For many years, it was believed (especially under academics) that stock prices
follow random walks, i.e. the best prediction of the next periods stock price
are todays price plus a drift term. This would imply that stock returns are not
predictable. There is growing evidence that stock market returns are
predictable to some degree. The literature documents predictability of stock
index returns from lagged returns lagged financial and macroeconomic
variables, and calendar dummies.
The guiding principle that asset markets are efficient and stock prices can be
described by a random walk is simply stated, but its implications are many
and subtle. The Efficient Market Hypothesis (EMH) has its roots in the
pioneering work of Gibson (1889) who writes that when shares become
publicly known in an open market, the value which they acquire may be
regarded as the judgment of the best intelligence concerning them, Gibson
(1889, p.11). It should be stressed that the views regarding the EMH are not
the results from doctrinaire beliefs, but result from a large body of empirical
work. The EMH may be expressed in a number of alternative ways and the
differences between these alternative representations can become rather
entangled. The general idea behind the EMH is that asset prices are
determined by the supply and demand in a competitive market with rational
investors. These rational investors gather relevant information very rapidly
and immediately incorporate this information into stock prices. If this
information is immediately incorporated into prices, only new information,
i.e. news, should cause change in prices. Since news is unpredictable by
definition, price changes (returns) should be unpredictable. Contrary to most
preceding research, Malkiel (1992) offers an explicit definition of the EMH:
A capital market is said to be efficient if it fully and correctly reflects all
relevant information in determining security prices. Formally, the market is

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said to be efficient with respect to some information set if security prices
would be unaccepted by revealing that information to all participants.
Moreover, efficiency with respect to an information set implies that it is
impossible to make economic profits by trading on the basis of that
information set.
To test the efficient market hypothesis, it is necessary to specify a model of
normal expected returns. The classic assumption used to be that expected
stock returns are constant over time, but there has been an increasingly
amount of literature that provides evidence against this assumption. In
particular, dividend yields and interest rates seem to have some significant
predictive power. This phenomenon occurs over business cycle and longer
horizons. Technical systems for predicting daily and weekly stock returns are
still close to useless after transaction costs (see, e.g., Hawanini and Keim,
1995). While most financial economists seem to have accepted these views,
they do not agree about the degree of the predictability. Evidence of return
predictability does not necessarily mean that markets are not (reasonably)
efficient. Because of time-varying expected returns due to changing business
conditions and risks, returns can be partly predictable, even when the EMH
holds. Consequently, testing for efficient markets critically depends on the
assumed model for the returns.

Trading in Indian stock exchanges is limited to listed securities of public
limited companies. They are broadly divided into two categories, namely,
specified securities (forward list) and non-specified securities (cash list).
Equity shares of dividend paying, growth-oriented companies with a paid-up
capital of atleast Rs.50 million and a market capitalization of atleast Rs.100
million and having more than 20,000 shareholders are, normally, put in the
specified group and the balance in non-specified group.



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Two types of transactions can be carried out on the Indian stock exchanges:
a) spot delivery transactions "for delivery and payment within the
time or on the date stipulated when entering into the contract which shall not
be more than 14 days following the date of the contract"
b) Forward transactions "delivery and payment can be extended by
further period of 14 days each so that the overall period does not exceed 90
days from the date of the contract". The latter is permitted only in the case of
specified shares. The brokers who carry over the outstanding pay carry over
charges (cantango or backwardation) which are usually determined by the
rates of interest prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and
sell securities for his clients on a commission basis and also can act as a trader
or dealer as a principal, buy and sell securities on his own account and risk, in
contrast with the practice prevailing on New York and London Stock
Exchanges, where a member can act as a jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old
conventional style of face-to-face trading with bids and offers being made by
open outcry. However, there is a great amount of effort to modernize the
Indian stock exchanges in the very recent times.

Bombay Stock Exchange (BSE) and National Stock Exchange of India Ltd.
(NSE) are the two primary exchanges in India. In addition there are 22
Regional Stock Exchanges. However BSE and NSE have established
themselves as the two main exchanges and account for about 80% of the
volume traded in Indian equity markets. Approximately NSE and BSE are
equal in size in terms of daily volume traded. NSE has about 1500 shares
which are traded and has a total market capitalisation of around Rs. 9,21,500

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Crores (Rs. 9215-bln). BSE has over 6000 stocks traded and has a total
market capitalisation of around Rs. 9,68,000 Crores (Rs.9680-bln). Most key
stocks are available on both exchanges and hence the investor could buy them
on either exchange. Both exchanges have a different settlement cycles. The
primary index of BSE is BSE Sensex, which comprises of 30 Stocks. NSE has
its own S& P NSE 50 Index (Nifty) which comprises of fifty stocks. Both
these indexes are calculated on the basis of market capitalisation and contain
the most highly traded shares from the key sectors. Daily volume on both
exchanges is approximately Rs. 4500 Crores each. (Rs. 45-bln.) The key
regulator governing Stock Exchanges, Brokers, Depositories, Depository
participants, Mutual Funds, FIIs and other participants in Indian secondary
and primary market is Securities and Exchange Board of India (SEBI) Ltd.
National Stock Exchange (NSE)
The National Stock Exchange (NSE), located in Bombay, is India' s first debt
market. It was set up in 1993 to encourage stock exchange reform through
system modernization and competition. It opened for trading in mid-1994. It
was recently accorded recognition as a stock exchange by the Department of
Company Affairs. The instruments traded are, treasury bills, government
security and bonds issued by public sector companies.
The number of members trading on the exchange has been on a steady
increase, helping integrate the national market and providing a modern system
with a complete audit trail of all transactions.
The National Stock Exchange (NSE) is India' s leading stock exchange
covering various cities and towns across the country. NSE was set up by
leading institutions to provide a modern, fully automated screen-based trading
system with national reach. The Exchange has brought about unparalleled
transparency, speed & efficiency, safety and market integrity. It has set up

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facilities that serve as a model for the securities industry in terms of systems,
practices and procedures.
NSE has played a catalytic role in reforming the Indian securities market in
terms of microstructure, market practices and trading volumes. The market
today uses state-of-art information technology to provide an efficient and
transparent trading, clearing and settlement mechanism, and has witnessed
several innovations in products & services viz. demutualisation of stock
exchange governance, screen based trading, compression of settlement cycles,
dematerialisation and electronic transfer of securities, securities lending and
borrowing, professionalisation of trading members, fine-tuned risk
management systems, emergence of clearing corporations to assume
counterparty risks, market of debt and derivative instruments and intensive
use of information technology.
S&P CNX Nifty
The "Nifty-Fifty" was a group of large-cap growth stocks that became the
market' s darlings in the late 1960s and into the early 1970s. They were great
companies that became known as "one-decision" stocks - stocks that you
should buy, no matter how expensive, and hold forever. The Nifty-Fifty term
was coined because there were about fifty of these companies with very high
price-to-earnings (P/E) ratios. Many had a P/E of fifty, or even higher. For
example, at year-end 1972 Xerox traded at forty-nine, Avon at sixty-five, and
Polaroid at ninety-one times earnings. The bear market of 1973-74 saw these
stocks collapse in a manner that was quite similar in speed and size to the
collapse that occurred in technology stocks, and large-cap growth stocks in
general, in early 2000 when the that bubble burst.

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S&P CNX Nifty is a well diversified 53 stock index accounting for 24 sectors
of the economy. It is used for a variety of purposes such as benchmarking
fund portfolios, index based derivatives and index funds.
S&P CNX Nifty is owned and managed by India Index Services and Products
Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India' s
first specialised company focused upon the index as a core product. IISL have
a consulting and licensing agreement with Standard & Poor' s (S&P), who are
world leaders in index services.
The average total traded value for the last six months of all
Nifty stocks is approximately 58% of the traded value of all stocks on the
NSE.
Nifty stocks represent about 60% of the total market
capitalisation as on on March 31, 2005.
Impact cost of the S&P CNX Nifty for a portfolio size of Rs.5
million is 0.07%
S&P CNX Nifty is professionally maintained and is ideal for
derivatives trading


















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Constituents list of S&P CNX NIFTY
Asea Brown Boveri Ltd. Electrical Equipment
Associated Cement Companies Ltd. Cement And Cement Products
Bajaj Auto Ltd.
Automobiles - 2 And 3
Wheelers
Bharat Heavy Electricals Ltd. Electrical Equipment
Bharat Petroleum Corporation Ltd. Refineries
Bharti Tele-Ventures Ltd. Telecommunication - Services
Cipla Ltd. Pharmaceuticals
Colgate-Palmolive (India) Ltd. Personal Care
Dabur India Ltd. Personal Care
Dr. Reddy' s Laboratories Ltd. Pharmaceuticals
Gas Authority of India Ltd. Gas
Glaxosmithkline Pharmaceuticals
India Ltd. Pharmaceuticals
Grasim Industries Ltd. Diversified
Gujarat Ambuja Cements Ltd. Cement And Cement Products
HCL Technologies Ltd. Computer Software
HDFC Bank Ltd. Banks
Hero Honda Motors Ltd.
Automobiles - 2 And 3
Wheelers
Hindalco Industries Ltd. Aluminium
Hindustan Lever Ltd. Diversified
Hindustan Petroleum Corporation
Ltd. Refineries
Housing Development Finance
Corporation Ltd. Finance - Housing
I T C Ltd. Cigarettes
ICICI Banking Corporation Ltd. Banks
Indian Petrochemicals Corporation
Ltd. Petrochemicals
Infosys Technologies Ltd. Computers - Software
Larsen & Toubro Ltd. Engineering
Mahanagar Telephone Nigam Ltd. Telecommunication - Services
Mahindra & Mahindra Ltd. Automobiles - 4 Wheelers
Maruti Udyog Ltd. Automobiles - 4 Wheelers
National Aluminium Company Ltd. Aluminium
Oil & Natural Gas Corporation Ltd. Gas
Oriental Bank of Commerce Banks
Punjab & National Bank Banks

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Ranbaxy Laboratories Ltd. Pharmaceuticals
Reliance Energy Ltd. Power
Reliance Industries Ltd. Petrochemicals
Satyam Computer Services Ltd. Computers - Software
Shipping Corporation of India Shipping
State Bank of India Banks
Steel Authority of India Ltd Steel & Steel Products
Sun Pharmaceutical Industries Ltd. Pharmaceuticals
Tata Chemicals Ltd. Diversified
Tata Consultancy Services Ltd. Computers - Software
Tata Engineering & Locomotive
Co. Ltd. Automobiles - 4 Wheelers
Tata Iron & Steel Co. Ltd. Steel And Steel Products
Tata Power Co. Ltd. Power
Tata Tea Ltd. Tea And Coffee
Videsh Sanchar Nigam Ltd. Telecommunication - Services
Wipro Ltd. Computers - Software
Zee Telefilms Ltd. Media & Entertaintment

India Index Services & Products Ltd. (Iisl)
India Index Services & Products Ltd. (IISL) is a joint venture between the
National Stock Exchange of India Ltd. (NSE) and CRISIL Ltd. (formerly the
Credit Rating Information Services of India Limited). IISL has been formed
with the objective of providing a variety of indices and index related services
and products for the capital markets.
IISL has a consulting and licensing agreement with Standard and Poor' s
(S&P), the world' s leading provider of investible equity indices.
OBJECTIVES OF IISL
IISL pools the index development efforts of CRISIL and NSE into a
coordinated whole - India' s first specialised company focused upon th e index
as a core product. IISL has the following objectives:


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To develop, construct and maintain indices on Indian equities and
commodities that serve as useful market performance benchmarks and are the
underlying indices for derivatives trading
To develop related products and services which can be used by
investors for managing their exposures in the equity and commodity markets
To provide data and information on the trading activity in the
Indian stock markets
To provide market participants with value added research on the
Indian equity and Commodity markets

All the erstwhile indices of NSE and CRISIL, such as Nifty, Nifty Junior,
Defty, CRISIL 500, CRISIL Midcap 200 index etc. have been transferred to
IISL which now maintains, develops, compiles and disseminates the indices.

Calendar effects are anomalies in stock returns that relate to the calendar, such
as the day-of-the-week, the month-of-the-year, or holidays. Two leading
examples are the Monday effect and the January effect. Economically small
calendar specific anomalies need not violate no-arbitrage conditions, but the
reason for their existence, if they are indeed real, is intriguing. Much effort
continues to be devoted to research on calendar effects. Yet, the literature
remains open about the significance of these effects for asset markets. One
reason is that the discovery of specific calendar effects could be a result of
data mining. Even if there are no calendar anomalies, an extensive search or
data mining exercise across a large number of possible calendar effects can
yield significant results of an anomaly by pure chance.1 Another reason
data mining is a plausible explanation is that theoretical explanations have
been suggested only subsequent to the empirical discovery of the
anomalies.

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The universe of possible calendar effects is not given ex ante from economic
theory. Rather, the number of different calendar effects that potentially could
be analyzed is only bounded by the creativity of interested researchers. Since
an extensive empirical analysis of calendar effects is likely to suffer from data
mining problems, it is therefore surprising that there is little work that aims to
limit the problem.
The test combines and incorporates the information from all calendar
anomalies to achieve good power properties without compromising test size
by exploiting the correlation structure that is specific to this testing problem.
The new test is asymptotically F-distributed. However, we implement a
bootstrap version of the test that diminishes possible small sample problems.
New test of calendar effects can be interpreted as a generalized-F test. It is
related to some recent methods for comparing forecasting models that have
been proposed by White (2000) and Hansen (2001), who builds on results of
Diebold & Mariano (1995) and West (1996). These tests exploit indirectly the
sample information about the dependence across forecasting models, which
are being compared. This is analogous to our generalized-F test because it
depends on the covariance of returns given the calendar effects being studied.
Calendar Effects
Often calendar effect are written short for possible calendar effect. Hence,
calendar effect need not imply that there is an anomaly associated with the
possible calendar effect, onl y the alternative hypothesis that it may exist.
Day-of-the-week
This effect states that expected return, or standardized return, are not the
same for all weekdays. This effect was first documented by Osborne (1962),

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and subsequently analyzed by Cross (1973), French (1980), Gibbons & Hess
(1981), Lakonishok & Levi (1980), Smirlock & Starks (1983), Keim &
Stambaugh (1983), Rogalski (1984) and Jaffe & Westerfield (1985). In our
universe, we include the five day-of-the-week calendar effects: Monday,
Tuesday,Wednesday, Thursday, and Friday. The Friday effect considers the
return from the preceding trading days closing price (typically a Thursday) to
Fridays closing price, and similarly for the other days. The returns on
Mondays are found to be negative in many studies, which is commonly
referred to as the weekend-effect.


Month-of-the-year
Rozeff and Kinney (1976) were the first to document evidence of higher mean
returns in January as compared to other months. Using NYSE stocks for the
period 1904-1974, they find that the average return for the month of January
was 3.48 percent as compared to only .42 percent for the other months. Later
studies document the effect persists in more recent years: Bhardwaj and
Brooks (1992) for 1977-1986 and Eleswarapu and Reinganum (1993) for
1961-1990. The effect has been found to be present in other countries as well
(Gultekin and Gultekin, 1983). The January effect has also been documented
for bonds by Chang and Pinegar (1986). Maxwell (1998) shows that the bond
market effect is strong for non-investment grade bonds, but not for investment
grade bonds. More recently, Bhabra, Dhillon and Ramirez (1999) document a
November effect , which is observed only after the Tax Reform Act of 1986.
They also find that the January effect is stronger since 1986. Taken together,
their results support a tax-loss selling explanation of the effect. We interact

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day-of-the-week with month-of-the-year, (Mondays in December,
Wednesdays in June, etc.) to add 60 (= 5 12) calendar effects.
Week-of-the-month
Weeks are constructed such that the first trading day of the month defines the
first day of the first week. If the first trading day is a Thursday, the first week
consists of two days (a Thursday and a Friday). The last week-of-the-month is
defined similarly, which means there will often be fewer than five days in a
week. Week-of-the-month effects are discussed in Ariel (1987), Lakonishok
& Smidt (1988), and Wang, Li & Erickson (1997). This adds 65 (= 5 + 5
12) effects to our universe.

Semi-month
Definition of semi-months follows that of Lakonishok & Smidt (1988). The
trading days are partitioned into two sets. The first set consists of trading days
for which the date is 15 or less, and the other set contains dates that are 16 or
higher. By interacting these two semi-month of- the-year effects with month-
of-the-year effects we obtain another 24 semi-months that adds another 26 (=
2 + 2 12) effects to our universe.
Turn-of-the-month
There are eight effects that relate to turn-of-the-month, one for each of the last
four trading days of the month and one for each of the first four trading days
of the month. This type of calendar effects is discussed in Ariel (1987),
Lakonishok & Smidt (1988), and Hensel & Ziemba (1996).


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End-of-Year
The days are grouped at the end of December into three calendar effect, which
follows Lakonishok & Smidt (1988):
Pre-Christmas from mid-December: the trading days from mid
December up to, but no including, the last trading day before
Christmas, (e.g.,December 15th 23rd).
Between Christmas and New Year: from the first trading day after
Christmas up to, but not including, the last trading day before New
Years Day.
Pre-Christmas and New Year: the last trading day before Christmas,
and the last trading day before New Years Day.


Holiday-effects
It can be classified into pre- and post-holiday effect. Pre-holidays are those
trading days which directly precede a day where the market is closed, but
would normally be open for trading. Post-holidays are those trading days that
follow pre-holidays. This adds two calendar effects to our universe.
The Indian Stock market had been in the clutches of the regulators for too
long and the process of liberalization has begun in the last decade only. The
Indian market operates in different institutional, regulatory, and tax
environments and hence there is a need to test for the existence of the calendar
effects in the Indian market.










CHAPTER 2
Review of literature

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Review of literature

Seasonality and the Nontrading Effect on Central-European Stock
Markets. Vit Bubak and Filip Zikes September 27, 2004

Abstract
The paper investigates seasonality and the nontrading effect on Central-
European Stock Markets within the framework of periodic autoregressive
model for both mean and volatility of stock returns. We find significant day-
of-week effects in the mean of returns on the Czech index PX-D and Polish
WIG, and significant seasonality in the volatility of the Hungarian BUX
index. Similarly, our empirical results indicate the presence of the non-trading
effect in the mean of Czech and Polish stock returns and in the volatility of
the Hungarian BUX.
Introduction
The analysis of seasonal patterns in the behavior of stock market returns has
been of considerable interest during recent decades. The reason behind this
curiosity remains clear: any predictable pattern in stock returns and variances
may provide investors with returns in excess of the stock market average or
from a specific portfolio benchmark. This paper focuses on one of the most
common seasonal patterns, the so called day-of-week effect. It has been
observed in numerous studies that the distribution of stock returns may be
different across the days of the week.
The stock price behavior can be examined in either of two ways. One
possibility assumes a combination of return and volatility techniques. The
study at hand is illustrative of this option and we will describe it later. The
alternative is to entertain each of the two techniques mentioned separately.

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Thus, there exists a set of studies which focus on the calendar patterns in
mean returns only
Conclusion
In the empirical finance literature, seasonality effects have been studied
extensively in both equity and foreign exchange markets. Still, the analysis of
seasonal patterns on stock markets in Central Europe has found its way to
only a limited number of research papers. The paper at hand extends this
empirical work in several ways. It investigates the seasonality and the
nontrading effect on Czech (PX-D), Polish (WIG) and Hungarian (BUX)
stock indices within the framework of periodic autoregressive models for both
the mean and variance of stock returns suggested in Franses and Paap (2000).
Our results provide evidence of significant day-of-week effects in the mean of
Czech and Polish stock returns. In addition, a significant seasonality has been
found in the volatility of the Hungarian BUX index. In a similar way, we find
significant non-trading effect in the mean of PX-D and WIG stock indices and
in the volatility of BUX It is worth emphasizing that predictability and
seasonality of stock returns found in this paper need not imply market
inefficiency. Although our results can be useful in the real-world investment
process, they do not imply that profitable trading strategies yielding superior
returns when adjusted for transaction cost exist. A further investigation into
the economic (and not only statistical) significance of stock returns
predictability and seasonality on Central-European stock markets is therefore
called for.




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The Day Of The Week Effect On Stock Market Volatility Istanbul Stock
Exchange Hakan Berument, Ali Inamlik

Abstract
This study investigates the day of the week effect on return and volatility for
Istanbul Stock Exchange (ISE) throughout the period 1986 and 2003. Using
generalized autoregressive conditional hetroskedasticity (GARCH) model, we
find statistically significant evidence to report that there is the day of the week
effect. Friday has the highest effect on return with 0,015 while Monday has
the lowest return with-0,003 compared to return on Wednesday. When
volatility of return is concerned, Monday has the highest volatility with 0,933
and Tuesday has the lowest volatility with 0,716 compared to return on
Wednesday
Conclusion
There is a new set of evidence that day of the week effect is present for both
returns and volatility for the developed economies. Our study investigates this
topic for ISE by using a GARCH specification. By using daily observation we
show that highest volatility is observed for Mondays and lowest for Fridays.
Moreover, Friday has the highest return and Monday has the lowest return.









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The Day-End Effect on the Paris Bourse
David Michayluk, Gary C. Sanger
Abstract
The high return observed at the close in many securities markets is one of
many unexplained phenomena in finance. We study this effect on the Paris
Bourse, which is a computerized order-driven market with multiple competing
dealers. In the Paris market certain stocks are assigned a Registered Dealer
with special market making responsibilities similar to those of an exchange
specialist. This simultaneous trading of stocks, some with and some without a
Registered Dealer, provides an excellent opportunity to examine the effect of
market structure on day-end returns. Using all securities continuously traded
on the Paris Bourse during the period January 1995 to December 1995, we
find high day-end transaction returns for all stocks. However, the magnitude
of the effect is nearly four times larger for stocks with a Registered Dealer,
which supports the market structure hypotheses. The day-end price rise is
largely explained by a shift from the bid to the ask price, and it is partly
reversed overnight. Finally, a change in closing procedure to a call auction in
May 1996 for a subset of stocks did not reduce the day-end effect.
Conclusion
We find that the day-end effect first observed in the U.S. is also present on the
Paris Bourse (Euronext Paris). Several features of the day-end effect are
similar in both markets. The effect is present only when the final trade of the
day is within a few minutes of the close of trading. Also, there are no
pronounced weekday or month-end patterns in the average day-end return. An
analysis of quote midpoints reveals that a large portion of the effect is caused
by an increase in the relative frequency of trades at the ask price.
We do find some differences between the Paris and U.S. results. Unlike Harris
(1989) we do not find a monotonic relation between the final return and stock

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price. This may be due to the variable pricing grid in the Paris market. Also,
while Harris (1989) failed to find an overnight reversal of the day-end return,
we find that approximately 30% of the final return is reversed overnight.

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Investigation of the Weekend Effect in Chinas Stock Market
BY SIMIAO ZHOU
Introduction
Chinas stock market is quickly developing with different characteristics from
other mature markets. Whether it also has a weekend effect is a question to be
answered. Furthermore, one main feature of Chinas stock market is its
locality. Examining such an isolated market helps to put aside one set of the
reasons, and focus on within-market reasons. In summation, this paper aims to
answer two questions:
First, as an emerging market, does Chinas stock market have a weekend
effect?
Second, since the microstructures of Chinas stock market are different from
those in developed markets, if it has a weekend effect, is it similar to what has
been observed in other countries?
The Shanghai Stock Exchange and Shenzhen Stock Exchange are highly
correlated and have the same organization features. This paper takes the
Shanghai Stock Exchange, which is the larger of the two, as the market of
interest. Like other literature, this paper uses the index to calculate the stock
returns.
Conclusion
Using the close-to-close daily returns from 1992 to 2002 in Shanghai
Composite Index, this paper examines the evidence of the weekend effect in
the Chinese stock market. To do so, both the OLS and ARCH (1) models are
carried out. ARCH (1) model is better than the OLS model. The results from
the ARCH (1) model show that all returns on five weekdays are not equal.
There exists some kind of weekend effect for the entire sample period. The

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highest return is observed on Friday. The lowest return, however, occurs on
Wednesday, which is different from what bas been observed in other mature
markets. Some possible reasons are examined too. Regression results for the
bull-market and bearmarket sub periods show that significant weekend effects
exist in both sub periods. So the information hypothesis may not well explain
the effect. After partitioning the sample period into two sub periods, this paper
finds that the weekend effect disappears after the 10 percent up and down
trading limits are put into effect on Dec. 26, 1996. This result implies that the
trading patterns and market volatility may explain this effect partially.

The day of the week effect in Indian market was examined by many
researchers (Chaudhury (1991), Poshakwala (1996), Goswami and Anshuman
(2000), Choudhry (2000), Bhattacharya, Sarkar and Mukhopadhyay (2003)).
All studies except Choudhry (2000) and Bhattacharya et al (2003) have been
based on data of mid-1980s and mid-1990s and all these studies have used
conventional methods like serial autocorrelation tests and or fitting an OLS.
Choudhry (2000) examined seasonality of returns and volatility under a
unified framework but the study has a misspecification issue with regard to
conditional mean. The Indian market operates in different institutional,
regulatory, and tax environments and hence there is a need to test for the
existence of the calendar effects in the Indian market.











CHAPTER 3
Research Methodology

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Research Methodology
Study Design
In this study an attempt has been made to experiment the Seasonality in
Indian Stock Market closing value of S&P Nifty Index as the sample.
Types of Data
Secondary data has been used for the analysis purpose.
Sample Frame
Sampling frame includes the closing value of S&P Nifty Index. Sample
includes historical closing values of S&P Nifty index value for the period of
five years from 3
rd
March 2000 to 3
rd
March 2005
Sample Technique
The sampling technique used is the convenient sampling. As the name
implies, the sample is selected because they are convenient. S&P CNX Nifty
is a benchmark stock index based on the selected stocks traded at National
Stock Exchange (NSE).
Data Gathering Procedure
The major data relevant for this research is secondary data which has been
collected from Bangalore Stock Exchange ( BGSE ).

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Instrumentation techniques
The usual definition of return as the percentage change in price has a very
serious problem in that it is not symmetric. For example, if the index rises
from 1000 to 2000, the percentage return would be 100%, but if it falls back
from 2000 to 1000, the percentage return is not -100% but only -50%. As a
result, the percentage return on the negative side cannot be below -100%,
while on the positive side, there is no limit on the return.
The return were calculated using the below equation for the whole five years
by using the formulae

R
t
= (V
t
/V
t-1
)
V
t
= The closing value of the index on day t
V
t-1
= The closing value of the index on the
previous day

The data was then segregated into respective days such as Monday, Tuesday,
Wednesday, Thursday, and Friday with there respective return. This data was
then spilt for different period from 3
rd
March 2000 to 8
th
Sep 2002 which
formed the first two and half years and then from 9
th
Sep 2002 to 9
th
march
2005 which formed the second two and half years .Then for the whole five
years. The day of the week effect was checked whether it varies with time






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ANOVA TEST
Analysis of variance is used to test for the significance of the difference
among more than two sample mean. Using analysis of variance we can make
inference about whether our samples are drawn from population having the
same mean in order to use analysis of variance we must assume that the each
of the samples is drawn from a normal population and that each of these
populations has the same variance .however if the sample size are large
enough, assumption of normality may not be needed.
Firstly we must estimate Between-Column variance.
The second step is to calculating the variance within the samples.
The comparing the two estimate of the population variance by computing
their Ratio



F =



Then the F Tabulated is seen from the Table for given degree of freedom and
at 5% level of significance. If F-calculated is greater than F-tabulated the
Hypothesis is rejected and if F-calculated is lees than F-tabulated the
Hypothesis is accepted.



First estimate of the population variance based on
the variance among the sample means

second estimate of the population variance based on
the variance within the sample


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Z-test(test for difference between means large sample)
When studying two population we use sampling distribution of the difference
between sample means denote the means of the samples drawn
from the first and second population respectively, having means
1
and
2
and
standard deviations
1
and
2
and if the sizes of the samples are n
1
and n
2
,
then it can be proved that the distribution of the difference between the means
is normal with mean (
1
-
2
) and S.D. is given by








Then the Z from the Table is for given the level of significance is seen. If
calculated is greater than tabulated the hypothesis is rejected if less than
tabulated it is accepted.










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CHAPTER4
Data Analysis and
Interpretation

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Results
Table No1
Result of F-Test
Table 1(a)
Analysis of Variance from March 2000 to March 2005
One-Way Analysis Of Variance
Source
Degree of
Freedom
Sum of
Squares
Mean
Squares F
cal

Model 4 0.000903 0.000226 0.94807
Error 1243 0.295938 0.000238
Corrected Total 1247 0.296841
Table No 1(b)
Analysis of Variance from Oct 2002 to March 2005
One-Way Analysis Of Variance
Source
Degree of
Freedom
Sum of
Squares
Mean
Squares F
cal

Model 4 0.000421 0.000105 0.503573
Error 616 0.128748 0.000209
Corrected Total 620 0.129169
Table No 1(c)
Analysis of Variance from March 2000 to Sep 2002
One-Way Analysis Of Variance
Source
Degree of
Freedom
Sum of
Squares
Mean
Squares F
cal

Model 4 0.00198 0.000495 1.875
Error 621 0.163944 0.000264
Corrected Total 625 0.165924



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H
0
: Return
Monday
5HWXUQ
Tuesday
5HWXUQ
Wednesday
5HWXUQ
Thursday
5HWXUQ
Friday

H
1
: Return
Monday
= Return
Tuesday
= Return
Wednesday
= Return
Thursday
= Return
Friday

Period F
calculated
F
table
Hypothesis
March 2000 to Sep 2002 1.875 2.37 Accepted
Oct 2002 to March 2005 0.503572871 2.37 Accepted
March 2000 to March 2005 0.94807 2.37 Accepted

The null hypothesis as seen from Table is accepted in all the three cases
Showing. Important and startling conclusion that Indian stock markets are
indeed efficient as far as the day-of -the week effect is concerned.

Table No 2
Result of Z test
H
0
: Return
Monday
5HWXUQ
Friday
H
1
: Return
Monday
= Return
Friday

Period Z
calculated
Z
table
Hypothesis
March 2000 to Sep 2002 0.037488352 1.96 Accepted
Oct 2002 to March 2005 -1.471239558 -1.96 Accepted
March 2000 to March 2005 -0.88727 -1.96 Accepted
The null hypothesis as seen from the Table 2 is accepted in all the three cases
so the popular perception that the returns are positive an Monday and lower
on Friday is proved false



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Table No 3
Computation of Mean Returns

March 2000 to
Sep 2002
Oct 2002 to
March 2005
March 2000 to
March 2005
Monday -0.002444211 5.99455E-05 -0.001187104
Tuesday -0.001110348 0.001674367 0.000282009
Wednesday 0.002357556 0.000559057 0.00147622
Thursday -0.000713873 0.001250334 0.000256677
Friday -0.002519489 0.002411908 -4.36436E-05


Table No 4
Computation of Standard Deviation


March 2000 to
Sep 2002
Oct 2002 to
March 2005
March 2000 to
March 2005
Monday 0.01643527 0.017923434 0.01720955
Tuesday 0.015977153 0.013633844 0.01488745
Wednesday 0.01596006 0.011464377 0.013940943
Thursday 0.014713872 0.013205813 0.013996183
Friday 0.018131318 0.015220182 0.01688033

























CHAPTER 5
Conclusion

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Conclusion
The objective of this paper is to examine the day-of-the-week effect in the
Indian Stock Market. The paper in particular studies the day-of-the-week-
effect with respect to the settlement system followed. The daily closing price
data on the S&P Nifty Index for the period March 2000-March 2005 has
been used in the study. The first step was testing of the null hypothesis that
the mean returns on all trading days of the week are not equal using F- test.
The null hypothesis that the means returns are not equal across all trading
days was true at 5% significance level. Then second part involved testing of
the null hypothesis that the mean returns on Monday and Friday are not
equal using Z- test. The null hypothesis that the mean returns on Monday
and Friday are not equal was true at 5% significance level.











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Bibliography
BOOKS:
Modern portfolio theory and investment Analysis
Elton & Gruber
Statistics For Management
- Richard I Levin & David S Rubin
Research papers
1. Seasonality and the Nontrading Effect on Central-European Stock
Markets. Vit Bubak and Filip Zikes September 27, 2004
2. The Day Of The Week Effect On Stock Market Volatility Istanbul
Stock Exchange Hakan Berument, Ali Inamlik
3. Investigation of the Weekend Effect in Chinas Stock Market BY
SIMIAO ZHOU
4. An Empirical Analysis of the Day-of-the-Week Effect in Stock
Returns: The Case of the Bombay Stock Exchange by Harishankar. R
and Priya B of IIM Ahmedabad

Websites

www.moneycontrol.com
www.nseindia.com
www.indiainfoline.com
www.domain-b.com
www.investopedia.com

National dailies

Business Lines
Business Standard
Economic Times

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