The Day of the Week Effect of Stock Returns: Empirical Evidence from Five Selected Arab Countries

This study examines the presence of one of the prominent anomalies which is the day of the week effect anomaly in five of Arab stock exchanges which are (Qatar, Amman, Palestine, Egypt, and Bahrain stock exchanges) cover the period from May 2010 to April 2014. By using one-way analysis of variance (ANOVA) analysis and Post Hoc Tests, the study indicates that there is no existence of the day of the week effect in each of (Qatar, Amman, Egypt, and Bahrain stock exchange) while it is presence in Palestine stock exchange where the lowest return is in Sunday (the first trading day of the week) and the highest return is in Tuesday.


Introduction
Market efficiency is one of the important concepts in finance that because of the increasing in the importance of the capital market efficiency in last decades. Several of studies have been conducted to examine the financial market efficiency, where the problem of financial (stock or equity) market efficiency captured the attention of many researchers whose published several articles related of market efficiency issue or what known as the efficient market hypothesis (EMH) (Borowski and Lukasik, 2015).
The efficient market hypothesis (EMH) claims that a market can be considered as an efficient if it interacts and responds accurately and quickly to all available information (Al-Jafari, 2012). Fama (1970, p.385) defines an efficient market as "a market in which prices always fully reflect available information", and he explored the efficient market hypothesis by three forms which are: weak form, semi-strong form and strong form. However, the efficient market hypothesis was conflicted by three groups of anomalies such as calendar anomalies or Seasonality, technical anomalies and fundamental anomalies (Srinivasan and Kalaivani, 2013). Calendar anomaly is the most critical topic in finance on which many studies have been made through the last three decades. Some of these anomalies which effect stock returns are day-ofthe-week effect, weekly effect, weekend effect, month-of-the-year effect, holidays effect, Islamic occasions as Ramadan effect and January effect etc. (Haroon and Shah, 2013).
The mean objective of this article is to examine the day of the week effect on stock return in some developing countries, selected from Arab countries. The article will include five sections. Section 1 presents the introduction, Section 2 presents the theoretical framework and literature review, Section 3 discusses data and research methodology, Section 4 discusses data analysis and results and Section 5 offers findings and conclusions.

Theoretical Framework and Literature Review 2.1. Purpose of the Paper
The day of the week effect is one of the anomalies appearing in stock market which related with efficient market hypothesis, so this part of the article will explain the term of market efficiency and the phenomenon which related with it.

Definition of Efficient Market
A market which includes large number of rational investors who are willing to maximize their profit by trying to forecast future prices of stocks, where the information which could affect the stock prices are completely and freely available for all investors (Karacaer et al. 2010). Fama (1991, p.1575) define efficient market hypothesis as "security prices fully reflect all available information" that mean any investors can't get abnormal return which is a high returns that can an investor achieved by a certain security or portfolio during a period of time which is different from the predicted rate of return -or forecasting the future stock prices according to past information, so as a result no one can beat the market for a long time, because stock prices quickly adapt in the market, many studies refer that abnormal returns in the stock market show a positive autocorrelation, in the short horizon and negative autocorrelation in the long horizon (Beker and Espino, 2013).

Efficient Market Hypothesis Forms
Fama (1970) divided market efficiency into three categories: weak form, semi-strong form, and strong form.
Weak form implies that the market is efficient; reflecting all available market information, assume that the rate of return on the market should be independent which mean the past rate of return has no effect on future return.
Semi-strong form implies that the market is efficient, reflecting all publically available information, assume that stock prices in the market adjust quickly to absorb new public information which means that no one of the investors can benefit over or above the market according to new information.
Strong form implies that the market is efficient; reflecting all available information whether private or public, assume that if any investor has a private information the market will reflect this information and the investor will not be able to earn abnormal return according to this information.

Anomalies in Efficient Market
Stock market anomalies are defined as abnormal pattern of stock returns that located in the stock markets. The efficient market hypothesis is conflicting with three groups of anomalies such as: calendar, fundamental and technical anomalies (Al-Jafari, 2012).
Calendar anomalies indicate to the tendency of securities which particularly behave differently on the day-of-the-week, week-of-the-month, month-of-the-year and others. Fundamental anomalies are related to the economic fundamentals of the equity; include value effect, small-cap effect and the low-volatility anomaly. Technical anomalies "related to the trading rules of the simple moving average and the exponential moving average" (Eriotis et al. 2006, p.87). Technical analysis is a way of predicting movement of the prices and the market trends in the future, by studying the market charts.

Day of the Week Effect
Day of the week effect is one of the calendar anomalies, many empirical studies refer to the existence of the day of the week effect on stock return, and claim that the first trading day of the week (Monday) has a negative effect which mean negative return, while the last trading day of the week (Friday) has a positive effect which mean positive return. This result provided first by Kelly (1930) in his pioneer study which implemented on US stock market, where approved that the average rate of return on Monday less than in other days of the week (Borowski, 2015). This result may give investors a trading strategy to earn abnormal return by buying stocks in the first trading day and hold them until the last trading day. But in the same time many other empirical studies refer to inexistence of the day of the week effect on stock return.

Literature Review
Since the pioneering study of the day of the weak effect on stock return which conducted by Cross (1973) which indicated that the lowest mean return and the highest variance occur on Monday offering a small risk return relationship compared to those of other days of the week, many empirical studies tried to examine the day of the weak effect on stock return, and other anomalies evidence from developed and developing countries. This study will examine the day of the weak effect anomaly applying on some chosen emerging stock markets. So the literature review will support the same objective.

Literature of Turkey
Many studies which conducted on different periods in Istanbul Stock Exchange which newly known as Borsa Istanbul found a clearly presence of the day of the week effect (Dicle and Hassan, 2007). Cinko and Avci (2009) refers to a significant negative effect on Mondays (negative return), and a significant positive effect on Thursdays and Fridays (positive return). Karacaer et al. (2010) examine the validity of the day of the week effect in Istanbul stock exchange. They found that daily returns on stocks depend on the days of week. Basdas (2011) found that the lowest returns are in Mondays and Tuesdays, while the highest return is in Fridays. Inamlik et al. (2003) found the lowest return on Mondays and the highest return on Fridays compared to return on Wednesday. Oral (2012) noted that the lowest variations were on Mondays and the highest variations were on Tuesdays.

Literature of Arab Countries
Most of the studies on test the day of the week effect which conducted on the Arab markets are a relatively recent, this is due to the novelty of Arab financial markets on the one hand and on the other hand the lack of interest in Arab researchers such studies until late, anyway, the study which conducted on Bahrain's stock exchange by Gharaibeh and Hammadi (2013), this study aimed to examine the correlation between the returns on the first trading day of the week and the last trading day of the week. 1 They found that there is a positive correlation between returns on the first trading day of the week and the last trading day of the week. Al-Jafari, (2012) investigate the day-of-the-week effect on stock returns and volatility from Muscat securities market, he did not find an exist of the day-of-the-week effect, where it begins positive and also end positive with deflation during the rest of the trading days. This result is consistent with the result of the study (Abdalla, 2012) which conducted on Sudanese stock market, and also familiar with the study (Al- Barrak, 2009) Aly et al. (2004) and Amman stock exchange by Al-Rjoub (2004) found a significant negative effect on the first trading day, and significant positive effect on the last trading day of the week.

Literature of Africa
Many studies of the day of the week effect have been applied to the financial markets in the countries of Africa, including a study of day of the week seasonality in some African stock markets such as Egypt, Kenya, Morocco, Tunisia, Zimbabwe, Nigeria and South Africa, published by Alagidede (2008). His results indicate that there is no day of the week effect in Egypt, Kenya, Morocco and Tunisia, while he found a significant effect of the day of the week in Zimbabwe, Nigeria and South Africa. In another study (Mlambo and Biekpe, 2006) which conducted on nine of African stock exchange including each of Botswana, BRVM 2 , Egypt, Mauritius, Morocco, Namibia, Tunisia, Zimbabwe, and Ghana, it has been claimed that there is a significant Monday effects on two stock exchange these are Botswana's and Morocco stock exchange while no significant effect on other countries. Also a study by Chukwuogor (2008) included five African stock markets (Botswana, Egypt, Ghana, Nigeria, and South Africa) and the result of this study is inconsistent with exist of the-day-of-the-week but refers to insignificant daily return volatility in all of these markets. In Nigerian Stock Market Ogieva et al. (2013) detected a negative market return on Mondays, Thursdays, and Fridays, and positive market return on Tuesday and Wednesday. In Ghana Panagiotidis and Alagidede (2009) failed to find any presence of the day of the week.

Literature of Some Other Emerging Countries
From India a study conducted on Bombay stock exchange by Jiun Chia and Sen Liew (2010) observed the presence of significant positive effect on Mondays and negative effect on Fridays, which agree with the result of a study performed on Malaysian stock market by Lim et al. (2010). From Pakistan a study conducted on Karachi stock exchange by Haroon and Shah (2013) found a negative Monday effect and positive Friday effects. From Sri Lanka a study applied on Colombo stock exchange by Thushara and Perera (2012) found the negative return on Mondays and Tuesdays, while the positive return on other trading days of the week.

Comments on Previous Studies
Results of previous studies were divided between those who said that there is an existence of the day of the week effect and those who said that there is no presence of the day of the week effect in stock markets. In addition, many studies preferred to a negative effect on the first trading day (Monday) and positive effect on the last trading day of the week (Friday), while others found different results. Furthermore, based on the differences in the studies there is a difference in measurement methods of the day of the week effect, while many of them used Ordinary Least Squares (OLS) regression or ANOVA to test the effect on return, others used GARCH, TARCH, EGARCH, and ARCH to test a volatility of return

Data and Research Methodology 4.1. Data
The daily closing data set which used in this study collected from (http://www.investing.com/indices/) website related to major indices of five Arab Stock Exchanges shown as in Table1. R= ln(P t /P t-1 ) where R refers to the daily return on the indices on day t, Pt is the closing price in day t, and Pt-1 is the closing price in the day before.

Research Methodology
To examine the effect day of the week on stock returns, the researcher estimates the following regression equation by using one-way analysis of variance (ANOVA) which used to define significant differences between mean returns of the days of the week. 3 R t = β 1 + β 2 D 2t + β 3 D 3t + β 4 D 4t + β 5 D 5t + ε t (2) where: R t :is the daily return (dependent variable) as calculated by equation (1). β 1 :constant or stock return on Sunday. β 2 -β 5 :stock return on Monday, Tuesday, Wednesday, and Thursday respectively. While β 1 toβ 5, are independent variables. D 2t : is dummy variable which take a value 1 if the day t is Monday and 0 otherwise. D 3t : is dummy variable which take a value 1 if the day t is Tuesday and 0 otherwise. D 4t : is dummy variable which take a value 1 if the day t is Wednesday and 0 otherwise. D 5t : is dummy variable which take a value 1 if the day t is Thursday and 0 otherwise. ε t : The error term, or residual absorbed all stochastic variation. Table 2 below gives some useful descriptive statistics, containing the mean, standard deviation and 95% confidence intervals for the daily stock return (dependent variable) for each independent group days (Sunday, Monday, Tuesday, Wednesday, and Thursday) to each stock market under study, also, when the groups are combined as a total. As a result of Table 2, there are no meaningful differences among daily stock return and any trading day through the week in each stock market under study. The mean represents the average return on the same day during the study period. The results of Table 3 reflect the analysis of variance to study if there are differences in average stock return according to the trading days, in another words, stock returns are differ depending on the trading day. The results indicate the lack of a moral test, means no significant differences or the average stock return does not vary according to the different days in all stock market under study except Palestine Stock Market which show significant level at 0.023 which is below 0.05, that mean there is a statistically significant difference in the mean between daily stock return and the trading days through the week, but we do not know exactly which day is differ. So to be sure about the differ trading day we should use another test which is Post Hoc test which make a multiple comparison among all trading days to find which day is differ.

Post Hoc Tests: Multiple Comparisons (Tukey HSD) 4
According to the result shown in Table 4 below, the only significant difference is between Sunday and Tuesday in Palestine Stock Market ups and downs by 0.001751which is a negligible value.

Findings and Conclusion
This paper examines daily stock returns data for five Arab stock exchanges Indexes (Bahrain all shares, QE general, Amman SE general, Al-Quds, and EGX30) from 2010-2014 to test for the day of the week effect in each of Bahrain, Qatar, Jordan, Palestine, and Egypt stock exchange, which give a unique opportunity to test for calendar anomalies, that because all of these stock markets under study where trading takes place from Sunday to Thursday as opposed to the more traditional markets trading from Monday to Friday.
The empirical result state that the day of the week effect only exist in Palestine stock exchange that's where the stock return in Sunday (the first trading day of the week) is significant (0.023) and negative (-0.00095), where the lowest return is on Sunday and the highest return is on Tuesday.
In Egypt there is insignificant effect (0.23) with positive return in all trading days, also in Qatar there is insignificant effect (0.20) with positive return in all trading days except Monday (-0.00024). In Jordan and Bahrain there are the same result refer to insignificant effect (0.13, 0.65) respectively, with negative return in the first three trading days (Sunday, Monday, and Tuesday) and positive return in others.
Finally we can say that there is no presence of the day of the week effect in Egypt which is consistent with the findings of Aly et al. (2004), and the same result in Bahrain which is inconsistent with the findings of Gharaibeh and Hammadi (2013). Also the paper does not find any exist of the day of the week effect in Qatar stock exchange which agree with Al-Jafari (2012). In Jordan stock exchange, we did not any effect of the day of the week which inconsistent with the findings of Alrabadi and Al-Qudah (2012), only we observed an existence