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Does the day of the week effect exist once transaction costs have been accounted for? Evidence from the UK

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  • A. Gregoriou
  • A. Kontonikas
  • N. Tsitsianis

Abstract

This article investigates the day of the week anomaly in the FTSE 100 Share Index over an 11-year time period from 1 January 1986 to 31 December 1997. Its focus is to assess whether the day of the week effect continues to persist once transactions costs are considered. Unlike previous literature it uses the bid-ask spread as a proxy for transactions costs. It finds that once returns become robust to transactions costs the anomaly appears to fade away. It then extends the research by looking at the time-varying volatility of stock returns with use of a GARCH model. The GARCH results further support the fact that transaction costs appear to die away the day of the week anomaly in the UK Stock market.

Suggested Citation

  • A. Gregoriou & A. Kontonikas & N. Tsitsianis, 2004. "Does the day of the week effect exist once transaction costs have been accounted for? Evidence from the UK," Applied Financial Economics, Taylor & Francis Journals, vol. 14(3), pages 215-220.
  • Handle: RePEc:taf:apfiec:v:14:y:2004:i:3:p:215-220
    DOI: 10.1080/0960310042000187388
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    References listed on IDEAS

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    1. 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 819-835, July.
    2. Raj Aggarwal & Ramesh P. Rao & Takato Hiraki, 1989. "Skewness And Kurtosis In Japanese Equity Returns: Empirical Evidence," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(3), pages 253-260, September.
    3. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Rogalski, Richard J, 1984. " A Further Investigation of the Weekend Effect in Stock Returns," Journal of Finance, American Finance Association, vol. 39(3), pages 835-837, July.
    5. French, Kenneth R., 1980. "Stock returns and the weekend effect," Journal of Financial Economics, Elsevier, vol. 8(1), pages 55-69, March.
    6. Thaler, Richard H, 1987. "The January Effect," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 197-201, Summer.
    7. Lakonishok, Josef & Levi, Maurice, 1982. " Weekend Effects on Stock Returns: A Note," Journal of Finance, American Finance Association, vol. 37(3), pages 883-889, June.
    8. Zainudin Arsad & J. Andrew Coutts, 1997. "Security price anomalies in the London International Stock Exchange: a 60 year perspective," Applied Financial Economics, Taylor & Francis Journals, vol. 7(5), pages 455-464.
    9. Thaler, Richard H, 1987. "Seasonal Movements in Security Prices II: Weekend, Holiday, Turn of the Month, and Intraday Effects," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 169-177, Fall.
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    Cited by:

    1. P., Srinivasan & M., Kalaivani, 2013. "Day-of-the-Week Effects in the Indian stock market," MPRA Paper 46805, University Library of Munich, Germany.
    2. 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.
    3. Georgios Bampinas & Stilianos Fountas & Theodore Panagiotidis, 2016. "The day-of-the-week effect is weak: Evidence from the European real estate sector," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(3), pages 549-567, July.
    4. Mahendra Chandra, 2006. "The day-of-the-week effect in conditional correlation," Review of Quantitative Finance and Accounting, Springer, vol. 27(3), pages 297-310, November.
    5. repec:eee:rujoec:v:3:y:2017:i:1:p:101-108 is not listed on IDEAS

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