Day of the week effect and Baltic stock exchanges

Abstract

Objective: There is an ongoing debate in the field of finance and economics on the existence of abnormal equity returns associated with calendar events. Commentaries including tax-loss selling at year-end, cash flows at month-end and negative news flow over the weekend give convincing evidence in support of returns abnormalities. In the mainstream markets (sector and geography wise) the topic of calendar anomalies was heatedly debated by industry participants and academics. Baltic bourses, however, received less attention. Given the gap, this current research was set to examine daily variations in the performance of the NASDAQ Baltic series.

Research Design & Methods: A well-established parametric algorithm was employed to test whether variations in returns are statistically different throughout week. Dummy-variable regression with an additional set of dummies that controlled for outliers in the series was performed.

Findings: The study found no evidence in support of the day-of-the-week in four NASDAQ Baltic series. However, Thursday and Friday came out as being positive and significant in Vilnius and Riga series.

Contribution & Value Added: The paper adds additional evidence on the contested issue of calendar anomalies. Certainly, differentials achieved on Thursday or Friday would not generate abnormal returns for institutional or individual investor. However, investors could use this updated knowledge to trade more effectively.

Keywords

Stocks, Baltic, Market, Returns, Monday

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