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The Day-of-the-Week Effect Revisited: An Alternative Testing Approach

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Author Info

  • Alt, Raimund

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna)

  • Fortin, Ines

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna)

  • Weinberger, Simon
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    Abstract

    This paper questions traditional approaches for testing the day-of-the-week effect on stock returns. We propose an alternative approach based on the closure test principle introduced by Marcus, Peritz and Gabriel (1976), which has become very popular in Biometrics and Medical Statistics. We test all pairwise comparisons of daily expected stock returns, while the probability of committing any type I error is always kept smaller than or equal to some prespecified level a for each combination of true null hypotheses. We confirm day-of-theweek effects for the S&P 500, the FTSE 30 and the DAX 30 found in earlier studies, but find no evidence for the 1990's.

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    File URL: http://www.ihs.ac.at/publications/eco/es-127.pdf
    File Function: First version, 2002
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    Bibliographic Info

    Paper provided by Institute for Advanced Studies in its series Economics Series with number 127.

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    Length: 29 pages
    Date of creation: Nov 2002
    Date of revision:
    Handle: RePEc:ihs:ihsesp:127

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    Related research

    Keywords: Day-of-the-week effect; Multiple hypotheses testing; Multiple comparisons; Closed test procedures; Multiple level a test;

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    References

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    1. Savin, N.E., 1984. "Multiple hypothesis testing," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 14, pages 827-879 Elsevier.
    2. Peter Huber, 1997. "Stock market returns in thin markets: evidence from the Vienna Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 7(5), pages 493-498.
    3. Klaus NEUSSER, 1990. "Testing the Long-Run Implications of the Neoclassical Growth Model," Vienna Economics Papers vie9002, University of Vienna, Department of Economics.
    4. Greenstone, Michael & Oyer, Paul, 2000. " Are There Sectoral Anomalies Too? The Pitfalls of Unreported Multiple Hypothesis Testing and a Simple Solution," Review of Quantitative Finance and Accounting, Springer, vol. 15(1), pages 37-55, July.
    5. Chow, K. Victor & Denning, Karen C., 1993. "A simple multiple variance ratio test," Journal of Econometrics, Elsevier, vol. 58(3), pages 385-401, August.
    6. Connolly, Robert A., 1991. "A posterior odds analysis of the weekend effect," Journal of Econometrics, Elsevier, vol. 49(1-2), pages 51-104.
    7. Madlener, Reinhard & Alt, Raimund, 1996. "Residential Energy Demand Analysis: An Empirical Application of the Closure Test Principle," Empirical Economics, Springer, vol. 21(2), pages 203-20.
    8. Keim, Donald B & Stambaugh, Robert F, 1984. " A Further Investigation of the Weekend Effect in Stock Returns," Journal of Finance, American Finance Association, vol. 39(3), pages 819-35, July.
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