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

Author

Listed:
  • 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

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.

Suggested Citation

  • Alt, Raimund & Fortin, Ines & Weinberger, Simon, 2002. "The Day-of-the-Week Effect Revisited: An Alternative Testing Approach," Economics Series 127, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:127
    as

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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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    References listed on IDEAS

    as
    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. Chow, K. Victor & Denning, Karen C., 1993. "A simple multiple variance ratio test," Journal of Econometrics, Elsevier, vol. 58(3), pages 385-401, August.
    3. 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.
    4. 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.
    5. Neusser, Klaus, 1991. "Testing the long-run implications of the neoclassical growth model," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 3-37, February.
    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. 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.
    8. Madlener, Reinhard & Alt, Raimund, 1996. "Residential Energy Demand Analysis: An Empirical Application of the Closure Test Principle," Empirical Economics, Springer, vol. 21(2), pages 203-220.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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