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The Impact of Settlement Procedures on Day-of-the-week Effects: Evidence from the Kuala Lumpur Stock Exchange

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  • A.D. Clare

    (Department of Management, University of Southampton, Highfield Southampton)

  • M.S.B. Ibrahim
  • S.H. Thomas
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    Abstract

    Using daily data from 1983 to 1993 for the Kuala Lumpur Stock Exchange Composite Index (KLSI) we examine the day-of-the-week effect. Our initial findings indicate that there is a marginally significant negative Monday effect (in keeping with US studies) and a significant positive Wednesday and Thursday effect for the whole period. We consider a number of possible explanations for these results including the impact of: "closed market effects"; the "time zone hypothesis"; "market size" and "price"; the "January Effect"; and the possibility of "mismeasured risk". However, we believe that the most likely cause of the seasonal effects documented between 1983 and 1993, can be traced to the pre-1990 settlement procedures on the Kuala Lumpur Stock Exchange since we find that after this date nearly all of the seasonal variation in daily stock returns disappears. Thus we highlight in this paper the importance of considering the microstructure of financial markets in empirical tests of apparent market anomalies. Copyright Blackwell Publishers Ltd 1998.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

    Volume (Year): 25 (1998-04)
    Issue (Month): 3&4 ()
    Pages: 401-418

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    Handle: RePEc:bla:jbfnac:v:25:y:1998-04:i:3&4:p:401-418

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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    Cited by:
    1. Chia Ricky Chee-Jiun & Lim Shiok Ye, 2011. "Stock Market Anomalies in South Africa and its Neighbouring Countries," Economics Bulletin, AccessEcon, vol. 31(4), pages 3123-3137.
    2. Julijana Angelovska, 2013. "An Econometric Analysis of Market Anomaly - Day of the Week Effect on a Small Emerging Market," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(1), pages 314-322, January.
    3. Lucey, Brian M., 2006. "Investigating the determinants of the Wednesday seasonal in Irish Equities," Research in International Business and Finance, Elsevier, vol. 20(1), pages 62-76, March.
    4. Brian Lucey, 2004. "Robust estimates of daily seasonality in the Irish equity market," Applied Financial Economics, Taylor & Francis Journals, vol. 14(7), pages 517-523.
    5. Chia, Ricky Chee-Jiun & Liew, Venus Khim-Sen & Syed Khalid Wafa, Syed Azizi Wafa, 2006. "Calendar anomalies in the Malaysian stock market," MPRA Paper 516, University Library of Munich, Germany.

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