I test some special days’ effects on the stock market daily returns. These special days are: previous day three or more times up or down in a row, the first day of the month and the last day of the month, options expiration Friday, and Monday after and before options expiration day. I am using stochastic dominance test following Levy (2006) stochastic dominance algorithms, comparing pairwise those special days with each other and with all other ordinary days. To compare the results with dominance approach, I use Wald test and two sided t-test. The main idea behind these special days’ effects is that even though stock market itself has neither a memory nor certain patterns, the human emotions, thus human reaction in the form of stock market decisions relating to those special days in general remains similar over time. I apply stochastic dominance test on major US, UK and Japanese stock market indexes. I find that: - Daily stock market returns after three or more down days in a row stochastically dominate daily returns after three or more up days in a row, - First and last trading days of the month stochastically dominate other days of the month, - Monday before options expiration Friday stochastically dominates all other Mondays, and all other Mondays stochastically dominate Monday after options expirations Friday, and since stochastic dominance is transitive, Monday before options expiration day stochastically dominates Monday after options expiration day, - Options expiration Friday is stochastically dominated by all other Fridays, the first Friday of the month stochastically dominates the fifth Friday of the month, and the fifth Friday of the month stochastically dominates all other Fridays except the first Friday, and again, by transitivity, the first Friday of the month stochastically dominates all other Fridays. The above mentioned stochastic dominances are very general conclusions, as I found mostly second degrees of stochastic dominance, and those dominances are very similar in DJIA, NASDAQ 100, NASDAQ Composite, S&P 500 indexes, and somewhat different in Nikkei 225 and Russell 2000, which I mainly contribute to trading time differences.
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