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Day-of-the-week effect on the return and conditional variance of the H-shares index in Hong Kong

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  • Hing Lin Chan
  • Kai-Yin Woo

Abstract

The purpose of this article is to investigate the day-of-the-week effect on both the return and conditional variance (volatility) of the H-shares index in Hong Kong from 3 January 2000 to 1 August 2008. Using an Exponential General Autoregressive Conditional Heteroskedasticity (EGARCH) specification to model the conditional variance, we find that the day-of-the-week effect is present in both return and variance equations. In particular, higher risk-adjusted returns are found on Monday and Friday. However, after adjusting for market risks that vary across the days of the week, only the Monday effect remains. The conditional variance model also finds that the highest volatility of return also occurs on Monday. Thus, the Monday effects on risk-adjusted returns may be a reward for higher volatility on that day. However, after adjusting for transaction costs, the abnormal returns for Monday become negligible.

Suggested Citation

  • Hing Lin Chan & Kai-Yin Woo, 2012. "Day-of-the-week effect on the return and conditional variance of the H-shares index in Hong Kong," Applied Economics Letters, Taylor & Francis Journals, vol. 19(3), pages 243-249, February.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:3:p:243-249
    DOI: 10.1080/13504851.2011.572838
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    Cited by:

    1. Boubaker, Sabri & Essaddam, Naceur & Nguyen, Duc Khuong & Saadi, Samir, 2017. "On the robustness of week-day effect to error distributional assumption: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 114-130.

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