An investigation on the day of the week effect in the Nairobi securities exchange

Abstract

The day of the week patterns have been investigated extensively in different markets. The average daily return is not the same for each of the day of the week; hence the day of the week effect phenomenon resulted in a different return for each day of the week which can affect investors in deciding investment strategy, portfolio selection and profit management. Most of the studies done have depicted different results, more so in Kenya most studies conducted on market efficiency have concentrated on the weak-form efficiency using various corporate announcements, with none vouching for market anomalies, hence more studies should be done in these area to come up with more viable results and findings as the study and knowledge on market efficiency in stock markets is of importance and significance to all participants for obvious reasons. The main objective of the study was to investigate the presence of day of the week effect in NSE. This research study made use of descriptive research design. This study sought to understand the relationship between the independent variables against dependent variable to determine the negative and positive returns on the different days of the week. The target population for this study constituted all the companies at the NSE. The sample of the study constituted the NSE-20share index from the NSE. Both monetary information on prices of securities and value data for the NSE-20 share index was used. The researcher used secondary data for obtaining necessary information for the study. Using a data collection sheet, the daily stock prices, that is opening and closing index values was collected from the daily price list compiled by the NSE. The data included daily returns and prices from January 2008 to December 2011. The study made use of SPSS version 21.0 in analyzing data. The researcher used quantitative method to analyze data. The quantitative data collected was summarized and analyzed by using descriptive statistics. Regression analysis was vi used to determine the positive and negative returns in the days of the week. The study found day of the week effect is present in the return of share prices equation. It was clear from these findings that Friday recorded the highest mean score than other days of the week over the period studied. The study concludes that the Day-of-the-Week had a significant effect on the NSE 20-share index during the investigated period. From the analysis of the various sectors in the NSE, the returns for the stock market sectors are non-normally distributed and have fatter tails and high peaks. The findings of this suggest that the Companies as well as the investors should consider the day of the week effect since it is noteworthy because they are suggestive of underlying behavioral factors. The phenomenon has been known for a long time, and markets should adjust and be efficient in this regard. Moreover, the growth of the internet should be reinforced since it reduces information and transaction costs, mitigating the Day of the Week Effect.