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The Impact of Settlement Procedures on Day‐of‐the‐week Effects: Evidence from the Kuala Lumpur Stock Exchange

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  • A.D. Clare
  • M.S.B. Ibrahim
  • S.H. Thomas

Abstract

Using daily data from 1983 to 1993 for the Kuala Lumpur Stock Exchange Composite Index (KLSI) we examine the day‐of‐the‐week effect. Our initial findings indicate that there is a marginally significant negative Monday effect (in keeping with US studies) and a significant positive Wednesday and Thursday effect for the whole period. We consider a number of possible explanations for these results including the impact of: closed market effects; the time zone hypothesis; market size and price; the January Effect; and the possibility of mismeasured risk. However, we believe that the most likely cause of the seasonal effects documented between 1983 and 1993, can be traced to the pre‐1990 settlement procedures on the Kuala Lumpur Stock Exchange since we find that after this date nearly all of the seasonal variation in daily stock returns disappears. Thus we highlight in this paper the importance of considering the microstructure of financial markets in empirical tests of apparent market anomalies.

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  • A.D. Clare & M.S.B. Ibrahim & S.H. Thomas, 1998. "The Impact of Settlement Procedures on Day‐of‐the‐week Effects: Evidence from the Kuala Lumpur Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(3‐4), pages 401-418, April.
    • Handle: RePEc:bla:jbfnac:v:25:y:1998:i:3-4:p:401-418
    DOI: 10.1111/1468-5957.00194
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    Cited by:

    1. Chia Ricky Chee-Jiun & Lim Shiok Ye, 2011. "Stock Market Anomalies in South Africa and its Neighbouring Countries," Economics Bulletin, AccessEcon, vol. 31(4), pages 3123-3137.
    2. Roberto Joaquín Santillán Salgado & Alejandro Fonseca Ramírez & Luis Nelson Romero, 2019. "The "day-of-the-week" effects in the exchange rate of Latin American currencies," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 14(PNEA), pages 485-507, Agosto 20.
    3. M. Imtiaz Mazumder & Edward M. Miller & Oscar A. Varela, 2010. "Market Timing the Trading of International Mutual Funds: Weekend, Weekday and Serial Correlation Strategies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7‐8), pages 979-1007, July.
    4. Brian Lucey, 2004. "Robust estimates of daily seasonality in the Irish equity market," Applied Financial Economics, Taylor & Francis Journals, vol. 14(7), pages 517-523.
    5. Weber Christoph S. & Nickol Philipp, 2016. "More on Calendar Effects on Islamic Stock Markets," Review of Middle East Economics and Finance, De Gruyter, vol. 12(1), pages 65-113, April.
    6. Tian Yuan & Rakesh Gupta & Robert J. Bianchi, 2015. "The Pre-Holiday Effect in China: Abnormal Returns or Compensation for Risk?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(03), pages 1-28.
    7. Luo, Kevin & Tian, Shuairu, 2020. "The “Black Thursday” effect in Chinese stock market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).

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