International Research Journal of Finance and Economics

ISSN 1450-2887 Issue 2 (2006)

EuroJournals Publishing, Inc. 2006
http://www.eurojournals.com/finance.htm

Day of the Week Effect on European Stock Markets

Rosa Mara Cceres Apolinario, Octavio Maroto Santana and Lourdes Jordn Sales
Departament of Financial Economics and Accounting
The University of Las Palmas de Gran Canaria
Spain
Alejandro Rodrguez Caro
Departament of Quantitative Methods
The University of Las Palmas de Gran Canaria
Spain
Abstract
The day of the week effect implies that the stocks return is not independent of the day of
the week in which they are generated. The existence of seasonal behaviour in return and
volatility of different international stock exchanges may be considered as an indication of
non integrated financial markets. Investment opportunities can therefore arise from this
abnormal behaviour. This paper focuses on this type of opportunity, specifically on the
analysis of the day of the week effect on the major European stock markets by means of
GARCH and T-ARCH models. The findings indicate that abnormal behaviour is not
present in the returns of these stock markets. In addition, evidence is obtained of the day of
the week effect in the volatility of major European stock markets, using symmetric and
asymmetric models.
Key Words: Day of the week effect, volatility, GARCH, T-ARCH.
JEL Classification: G15, C3.

I. Introduction
The increasing internationalisation of the main economies from developed nations has given the
investor additional choices when considering his portfolio. He is no longer obliged to focus his
attention on the financial markets where the assets of his own country are listed in the stock market but
instead may look towards other investment horizons whose markets offer opportunities to obtain
greater results with respect to profit and risk. This scenery is characterised by significant relaxation of
national barriers, thus allowing for the entrance of foreign capital, and its repercussions are seen in the
considerable increase in international capital flows (see Climent and Meneu, 1999). Torrero (1999)
recognised the same occurrences and commented that institutional investors caused greater
internationalisation in investments due to growing influence of international investments in their
portfolios.
Nevertheless, it is necessary to remember that investment opportunities in international markets
depend on the degree of integration or segmentation that said markets possess1, even though the
increasing international nature of these economies is quite evident. In this respect, Jacquillat and Solnik
(1978) stated that the advantages that are derived from international diversification result in the relative
1

Harvey (1995) claimed that if two assets are sold in two completely integrated financial markets at the same risk level,
then they would have the same expected profitability, leading to a decision to avoid diversification within these markets.

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International Research Journal of Finance and Economics - Issue 2 (2006)

independence between the distinct national economies and the price behaviour of securities. Thus, if
markets are highly integrated than opportunities of receiving profits from an international portfolio are
not so high. The presence of anomalies in international financial markets can be a clear sign that a lack
of integration among these markets exists, thus investment opportunities derived from different
behaviours in the generation of returns are available. Several studies have centred on relative anomalies
in the seasonality of distinct financial markets of developed countries as an explanation to why there is
an absence of integration between international financial markets. The growing use of daily data has
led to additional research in the financial literature, specifically extending the analysis of seasonal
behaviour to include the day of the week effect, the weekend effect and the bank holiday effect. The
financial literature on this topic has offered several justifications for these anomalies: the absence of
negotiations during the weekends, Monday availability of information regarding responses to generated
information during non-listing days; market transaction payment procedures, effects derived from
liquidity, etc.
This seasonality has been the subject of different studies which detected empirical evidence of
abnormal yield distributions based upon the day of the week. The pioneering work was carried out
using data from the U.S. market. The following authors, among others, made important contributions:
Osborne (1962), Cross (1973), French (1980), Gibbons and Hess (1981), Lakonishok and Levi (1982),
Keim and Stambaugh (1984) and Rogalski (1984). This effect has also been analysed in security
markets under an international setting in works by Jaffe and Westerfield (1985a), (1985b), Aggarwal
and Rivoli (1989), Solnik and Bousquet (1990), Chang, Pinegar and Ravichandran (1993),
Athanassakos and Robinson (1994), Corredor and Santamara (1996), Dubois and Louvet (1996) and
Kyimaz and Berument (2001).
The objective of this paper is to empirically contrast the day of the week effect in the major
European stock markets from July 1997 to March 2004. We will study not only return but volatility as
well. The day of the week effect under a volatility context has not received much attention in the
literature. The motivation for this paper comes from the growing process of integration of the distinct
world economies and European economies in particular, resulting in an increasing correlation and
synchronization among financial markets from different countries.
The paper is divided into the following sections. Section 2 presents a brief review of the financial
literature dealing with the anomaly commonly referred to as the day of the week effect. Section 3 then
follows with a description of the database as well as the methodology employed in the paper. The
estimations from the GARCH and T-ARCH models and the results are presented in Section 4. The
paper ends with a summary of the main conclusions.

II. Earlier Studies

There is an extensive amount of financial literature which focuses on the day of the week effect.
Osborne (1962) and Cross (1973) discovered empirical evidence demonstrating that Monday yields
were lower than Friday ones for the S&P 500 Index. Similar results are presented in French (1980),
upon comparing Monday, Friday and weekly average returns for the same index. He observed that
Friday returns were greater than the average while Monday returns were lesser than the average.
Gibbons and Hess (1981) also came to the conclusion that Mondays resulted in negative returns. Their
study was based on a sample of 30 stocks from the Dow Jones Industrial Index. Lakonishok and Levi
(1982) have offered market transaction payment procedures as an explanation for the seasonal
behaviour in the daily yields. Keim and Stambaugh (1984) tried to explain the weekend effect in the
American market as being related to the measurement errors in stock prices.
These earlier studies of the day of the week effect were based on yield calculations at closing
between two dates. Rogalski (1984) approached the problem by dividing yields into non-trading
periods (from close to opening) and trading periods (from opening to close). He came to the conclusion
that negative Monday returns were generated between the Friday closing and Monday opening, thus

International Research Journal of Finance and Economics - Issue 2 (2006)

55

not taking into account the differences in average returns on specific days of the week when
considering the trading period.
These studies were first carried out in U.S. Stock Market and later in other international financial
markets. This approach allowed Jaffe and Westerfield (1985a) to obtain evidence of the weekend effect
for the markets in Canada, Australia, Japan and the United Kingdom. Negative Tuesday returns were
also obtained for the Japanese market (see Jaffe y Westerfield (1985b)). Similar results are presented in
Condoyanni, OHanlon and Ward, (1987) for the Singapore, Japan and Australia markets. The French
and Italian markets are studied by Solnik and Bousquet (1990) and Barone (1990), respectively.
Mention must also be given to authors such as Connolly (1989) and Chang, Pinegar and Ravichandran
(1993), who analysed the robustness of the utilized techniques for the study of seasonality, including
adjustments in size, heteroskedasticity, autocorrelation and kurtosis. Evidence has also been found
showing the disappearance of the day of the week effect in Belgium, Denmark, Germany and the U.S.
for a sample of 24 national indexes. Athanassakos and Robinson (1994) observed negative tuesday
returns in the Canadian market which exceeded those from mondays. Nevertheless, Dubois and
Louvet (1996) did not arrive to any clear conclusions when they studied nine international markets
using both parametric and non-parametric tests. Several conditional autoregressive heteroeskadistic
models have been developed and applied to the analysis of financial series by several researchers2
since the work of Engle (1982).
This approach has also been widely used in the analysis of seasonality, as can be specifically seen in
Copeland and Wang (1994), Corhay and Rad (1994), Theodossiou and Lee (1995), Corredor and
Santamara (1996), Miralles and Miralles (2000), Amigo and Rodrguez (2001) and Kyimaz and
Berument (2001). Corredor and Santamara (1996) studied the NYSE and five other European
exchanges using a GARCH (1,1) model. They observed daily seasonality in London, Paris, Madrid and
Milan. Miralles and Miralles (2000) analyzed daily seasonality in the Lisbon Stock Exchange using the
same model. Amigo and Rodrguez (2001) used GARCH (1,1) and T-GARCH3 (1,1) models on the
Nuevo Mercado and found common seasonal structures based on the stock returns that made up the
market index. Kyimaz and Berument (2001) studied daily seasonality in five international markets
through the use of different variations of the GARCH model.

III. Data and Methodology

a) Data
The present paper used series of daily returns from the corresponding stock indices of the following
European markets: Germany, Austria, Belgium, Denmark, Spain, France, The Netherlands, Italy,
Portugal, The United Kingdom, The Czech Republic, Sweden and Switzerland.
The sampling dates begin with July 2, 1997 and end on March 22, 2004. The returns for each
market are expressed in local currency and have been calculated as first differences in natural
logarithms according to the following expression:
p
rt = ln t
pt 1

where pt and pt-1 are the values for each index for periods t and t-1, respectively.
The analysis of the day of the week effect was carried out in the following manner. First we used
five observation per week in order to avoid possible bias from the loss of information due to bank

2
3

See, among others, French, Schwert, and Stambaugh (1987), Baillie and Bollerslev (1989), Hsieh (1989), Baillie and DeGennaro
(1990), Hamao, Masulis and Ng (1990), Nelson (1991), Campbell and Hentschel (1992), Glosten, Jagannathan and Rungle (1993).
These authors use the term GJR for the T-ARCH model.

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International Research Journal of Finance and Economics - Issue 2 (2006)

holidays4 . A total of 1754 yields were collected for each of the analysed markets. Table I shows the
indices used for each country market in our sample.
Table I: Description of the sample
Country

Index

Country

Index

Germany

DAX

Italy

MIB-30

Austria

ATX

Portugal

PSI-20

Belgium

BEL-20

U. Kingdom

FTSE-100

Denmark

KFX

Czech Rep.

PX-50

Spain

IBEX-35

Sweden

Stockholm General

France

CAC-40

Switzerland

Swiss Market

Holland

AEX

Table II summarises the main descriptive statistics from the yield series. The limited asymmetry of
the indices in the table should be noted, being positive or to the right in 61% of the cases. The high
kurtosis values in all of the yield series and its implications deserve attention, namely that the
normality test is rejected for all the analysed cases.
Table II: Descriptive Statistics
Germany

Austria

Belgium

Denmark

Spain

France

Holland

Mean

0,0001

0,0002

0,0001

0,0003

0,0002

0,0002

0,0000

Median

0,0007

0,0006

0,0002

0,0003

0,0008

0,0004

0,0003

Maximum

0,0785

0,0540

0,0978

0,0510

0,0668

0,0725

0,0998

Minimum

-0,0629

-0,0833

-0,0546

-0,0607

-0,0707

-0,0739

-0,0725

Stand. Dev.

0,0179

0,0106

0,0129

0,0123

0,0156

0,0160

0,0171

Asymmetry

0,0054

-0,6828

0,4112

-0,1793

-0,0859

0,0076

0,0856

Kurtosis

4,4037

8,1334

7,6379

4,5828

4,6423

4,8880

5,5880

144,002

2.062,17

1.621,482

192,489

199,282

260,530

491,646

0,0000

0,0000

0,0000

0,0000

0,0000

0,0000

0,0000

Italy

Portugal

Czech R.

Sweden

Switzerland

U. K.

Mean

0,0002

0,0001

0,0004

0,0002

0,0001

0,0000

Median

0,0003

0,0001

0,0003

0,0004

0,0003

0,0002

Maximum

0,0808

0,0719

0,0599

0,1038

0,0775

0,0608

Minimum

-0,0622

-0,0914

-0,0683

-0,0666

-0,0562

-0,0544

Stand. Dev.

0,0155

0,0120

0,0129

0,0153

0,0138

0,0128

Asymmetry

0,0277

-0,5101

-0,1436

0,2355

0,0405

0,0031

Kurtosis

4,7856

7,9381

4,6245

5,4738

5,9979

4,6467

J-B

233,26

1.858,21

198,897

463,448

657,319

198,174

Prob.

0,0000

0,0000

0,0000

0,0000

0,0000

0,0000

J-B
Prob.

However, Rogalski (1984), Keim and Stambaugh (1984), Kim and Park (1994) and Aggarwal and Schatzberg (1997),
among others, remove post -bank holiday trading from their studies. That is, they only use returns whose calculation is
performed with one day of difference for tuesday, wednesday, thursday and friday and three days of difference for mondays.

International Research Journal of Finance and Economics - Issue 2 (2006)

57

b) Methodology
One of the most common seasonality anomalies is the day of the week effect. This analysis is based on
the hypothesis that the yields produced by each security are not independent of the day of the week. An
initial approximation that could contrast the day of the week effect can be carried out with a regression
model, similarly to Miralles and Miralles (2000). They included five dummy variables, one for each
day of the week.
rit = 1 D1t + 2 D2 t + 3 D3t + 4 D4 t + 5 D5t + t
where:
rit : is the daily yield of the financial asset
Djt : are dummy variables which take on the value 1 if the corresponding return for day t is a monday,
tuesday, wednesday, thursday or friday, respectively and 0 otherwise.
j : are coefficients which represent the average return for each day of the week.
t : is the error term.
It is worth noting that even though the corresponding return on a specific day of the week is
significantly different than zero, this does not imply seasonality. Thus it is necessary to perform a
means test. This test verifies if the returns are independent of the day of the week that they are
produced in, or on the contrary, they are characterised by statistically similar average returns. The
rejection of the null hypothesis would imply that a day of the week effect is indeed present.
Nevertheless two serious problem arise with this approach. First, the residuals obtained from the
regression model can be autocorrelated, thus creating errors in the inference. The second problem is
that the variance of the residuals are not constant and possibly time-dependent.
A solution to the first type of problem was to introduce the returns with a one week delay into the
regression model, as used in the works by Easton and Faff (1994), Corredor and Santamara (1996) and
Kyimaz and Berument (2001), among others.
4

rit = 1 D1t + 2 D2 t + 3 D3t + 4 D4 t + 5 D5t +

j =1

j +5

rt j + t

ARCH models are proposed in order to correct the variability in the variance of the residuals. Engle
(1982) used this approach and it has the advantage that the conditional variance can be expressed as a
function of past errors. These models assume that the variance of the residual term is not constant
through time and is distributed as t ~ iid (0, t2 ) . The generalized version of these models was
proposed by Bollerslev (1986) and is expressed by the sum of a moving-average polynomial of order q
plus an autoregressive polynomial of order p:
q

= 0 +
2
t

i =1

2
i t i

i =1

2
t i

Others works by Baillie and Bollerslev (1989), Hsieh (1989), Copeland and Wang (1994) and
Kyimaz and Berument (2001) also include dummy variables which account for the possible stationary
effects within the equation of variance. The result of this approach is that joint estimates of the day of
the week effects are obtained, not only in the mean but also in the conditional variance.
rit = 1 D1t + 2 D2 t + 3 D3t + 4 D4 t + 5 D5t +

t ~ iid (0, t2 )

j =1

j+5 t j

= 1 D1 + 2 D2 + 3 D3 + 4 D4 + 5 D5 +
2
t

i =1

2
5+ i t i

+ t

i =1

2
t i

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International Research Journal of Finance and Economics - Issue 2 (2006)

This model is characterised by its symmetric behaviour since the volatility is invariant during gains
and losses of the stock quotations. Nevertheless, it is well known that the impacts in the volatility in
positive and negative yields need not have the same effect. Kiymaz and Berumet (2001) and Amigo
and Rodrguez (2001) have argued that on many occasions the obtained volatility from a negative
return is usually greater than the corresponding one during a gain in the stock quotation that is being
analysed. The asymmetric T-ARCH model is used in this case to confirm the existence or absence of
any asymmetric behaviour, which is known as the leverage effect.
The T-ARCH model introduced by Zakoian (1990) and Glosten and Jagannathan and Runkle (1993)
contains a structure which is similar to the symmetric GARCH model with one exception. They
include a term where the parameter is used to indicate the existence of differentiated behaviour in the
volatility against positive and negative shocks. The generalised structure of the T-ARCH model
follows:
rit = 1 D1t + 2 D2 t + 3 D3t + 4 D4 t + 5 D5t +

t ~ iid (0, t2 )
= 1 D1 + 2 D2 + 3 D3 + 4 D4 + 5 D5 +
2
t

i =1

j =1

2
5+ i t i

j+5 t j

+ t

i =1

2
t i

+ t21d t 1

where dt-1 is a dicotomic variable which takes on value 1 when the stock quote falls in a period and 0
for increments of the stock quotation.

IV. Estimation of the Models and Empirical Results

The study of seasonality in the returns and volatility for the European stock markets that are included
in our sample is carried out based on obtained estimates from the daily returns of each one of the stock
markets considered.
A) The Study of Day of the Week Effect on Returns
Four dummy variables have been used to account for seasonality in each of the stock exchanges for
each work day except wednesday. The regression model follows:
rit = + 1 D1t + 2 D2 t + 4 D4 t + 5 D5t +

j =1

j+5

rt j + t

The individual meaning for each one of the dicotomic variables could reveal the presence of an
atypical yield during a day of the week with respect to that of wednesday. Not only is the statistical
significance of each dummy variable studied but also possible structure in the autoregressive portion
and in the moving average which includes the regression model.
The obtained results are summarised in Table III and indicate that the day of the week effect is not
evident in most European stock markets since the yield for each day of the week is not especially
different than that of other days. This fact tells us that the return for the most important representative
European markets is independent of the day of the week. Nonetheless, a stationary effect can be
observed on mondays for the representative indexes of France and Sweden since the yields on this day
are greater than the rest of the week. This result does not coincide with those obtained in most
empirical studies where average monday returns are usually significantly less than the average returns
for the other days of the week. A similar finding is observed in Sweden where friday yields are much
greater than those for the other days of the week, thus recalling the friday effect for this specific
market. Table AI from the Appendix summarises the values of the significant coefficients in the yield
equation.

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59

Table III: Day of the week effect on returns

Country

Significant variables

Country

Significant variables

Germany

--

Italy

MA(4)

Austria

MA(1), MA(3), MA(4)

Portugal

AR(1), AR(3)

Belgium

AR(1)

U. Kingdom

MA(3)

Denmark

AR(1)

Czech Rep.

AR(1)

Spain

--

Sweden

D1, D5, AR(1)

France

D1

Switzerland

AR(1)

Holland

--

b) Day of the week effect on volatility

The importance of an analysis for the anomalies for distinct stock markets with respect to yields
encountered for the day of the week can not be ignored. The aim of each investor is to maximize the
binomial yield-risk from his investment. Thus it is especially important to analyse fluctuations which
are produced in the same markets. That is why both symmetric and asymmetric models have also been
used to study their variance. We have included the earlier dummy variables to the equation of variance,
similarly to Kyimaz and Berument (2001) in order to collect possible stationary effects which may
arise.
b.1) GARCH Model
The structure for the equation of estimated variance follows:
q

i =1

i =1

t2 = 0 + 1 D1 + 2 D2 + 4 D4 + 5 D5 + 5+ i t2 i + i t2 i
Table IV presents the results derived from the day of the week effect on volatility for each stock
market index, as well as the GARCH structure for each series.
Table IV: Day of the week effect on variance: GARCH model
GARCH

Significant

GARCH

Significant

Country

structure

variables

Country

structure

variables

Germany

(1,2)

D2, D5

Italy

(1,1)

D1, D4

Austria

(1,1)

D2, D5

Portugal

(1,1)

--

Belgium

(1,1)

D4, D5

U. Kingdom

(1,1)

D2

Denmark

(1,1)

D1, D5

Czech Rep.

(1,1)

--

Spain

(1,1)

D1, D4

Sweden

(1,1)

D2, D5

France

(1,1)

D4

Switzerland

(1,1)

D1, D4

Holland

(1,1)

D1, D4

The table shows that the resultant structure for all markets except Germany is GARCH (1,1). This
structure is the most appropriate for studying financial time series according to Lamoreux and
Lastrapes (1990). The case of Germany is characterised by a GARCH (1,2) structure.

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With regards to volatility during each day of the week, we did not find common behaviour in the
day of the week effect in the equation of conditional variance. This finding is in agreement with
Kyimaz and Berument (2001). There is, however, presence of abnormal volatility on mondays and
fridays in Denmark. Other observations include significantly distinct volatility on Mondays and
Thursdays, with respect to Wednesday, in Spain, Holland, Italy and Switzerland. The case is different
for abnormal volatilities for the United Kingdom and France, where the days are Tuesdays and
Thursdays, respectively. Seasonal behaviour is also apparent on Tuesdays and Fridays for the cases of
Germany, Austria and Sweden. Abnormal volatility occurs on Thursdays and Fridays in Belgium.
Finally, Portugal and the Czech Republic show no changes with regards to the day of the week. Table
AII in the Appendix summarises statistical coefficients for the equation of variance.
A general statement can be made for all of the markets that exhibit seasonal behaviour in the
volatility. Mondays and Thursday are always greater than Wednesdays, while the opposite is true for
Tuesdays and Fridays, that is, the yields are lesser than those experienced on Wednesday5 .
Tables AIV and AV show the corresponding values for the ARCH-LM test and the Q statistic of the
standardised residuals, respectively with lags of 5,10 and 20 in order to verify that ARCH effects on
the residuals are not present. The results derived from these tests reveal that an ARCH effect is not
present in the corresponding residuals of the estimates for these financial markets. Thus, there is no
problem of specification in these models.
Consequently the day of the week effect in volatility in distinct European financial markets is
present even though no common behaviour is noted among the respective countries.
b.2) T-ARCH model
As pointed out earlier, volatility can differ significantly, depending upon the sign of the obtained yield
for each period. For this reason we estimate volatility using a T-ARCH model which incorporates
possible asymmetric behaviour. The structure for the equation of variance follows:

t2 = 1 D1 + 2 D2 + 3 D3 + 4 D4 + 5 D5 +

5+ i t2 i +
i =1

i =1

2
t i

+ t21d t 1

Table V presents the obtained results from the analysis of the volatility in the day of the week for
each stock market index in addition to the T-ARCH structure for each series.
Table V: Day of the week effect on variance: T-ARCH model
GARCH

Significant

GARCH

Significant

Country

structure

Variables

Assymetry

Country

structure

variables

Assymetry

Germany

(2,1)

D2

SI

Italy

(1,1)

D1, D4

SI

Austria

(1,1)

D2, D5

SI

Portugal

(1,1)

D1

SI

Belgium

(1,1)

D2

SI

U.Kingdom

(1,1)

D1

SI

Denmark

(1,1)

D1, D5

SI

Czech Rep.

(1,1)

--

NO

Spain

(0,1)

D1, D4

SI

Sweden

(0,1)

D1, D2, D4,

D5

SI

France

(0,1)

--

SI

Switzerland

(1,1)

D1, D4

SI

Holland

(0,1)

D1, D4

SI

The inclusion of a parameter which accounts for asymmetric behaviour produces clear results in
Table V. The most common structure in all of the markets is a GARCH (1,1), whereas Spain, France,
5

Except friday in the Belgian market.

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61

Holland and Sweden follow a GARCH (0,1). Finally it should be noted that Germany resembles a
GARCH (2,1) structure.
The asymmetric behaviour in all markets except the Czech Republic needs to be pointed out. Thus
the gains and losses in each one of the stock markets in our sample affect in volatility in a different
way. The use of an additional parameter in the T-ARCH model for asymmetric behaviour leads to
different results than those from the symmetric GARCH model, with the expected exception in the
Czech Republic, whose results were the same for both models. Table AIII in the Appendix displays all
of the significant coefficients for the equation of variance in this model. The day of the week effect
reveals a similar behaviour pattern in the equation of variance as in the earlier model, that is, greater
volatility on mondays and thursdays with respect to wednesdays, and lesser volatility on tuesdays and
fridays6.
Tables AVI and AVII from the Appendix show the corresponding values from the ARCH-LM test
and the Q statistic from the standardized residuals, respectively, using lags of 5,10 and 20. They are
shown to confirm the absence of ARCH effects on the residuals. The results from these tests indicate
that no effect is present in the corresponding remainders of the estimates of the financial markets.
Thus, we do not encounter specification problems in this model.
The following observations can be made regarding the day of the week effect based on the
estimation of variance with an asymmetric model. First, a Monday effect takes place in Portugal and
the United Kingdom, while a Tuesday effect occurs in Germany and Belgium. Secondly, all other
countries except Sweden present seasonal behaviour in two days of the week. Thirdly, this behaviour is
seen on Mondays and Thursday in Spain, Holland, Italy and Switzerland. On the other hand, Tuesdays
and Fridays are statistically significant in Austria, as opposed to Mondays and Fridays in Denmark.
Finally, the Swedish market demonstrates volatility each day of the week with respect to Wednesday.

IV. Conclusions
Investors that are interested in including international markets in their portfolio need to know if these
markets are integrated or not. We pursued the answer to this question by studying possible seasonality
in international markets. Our analysis focused on an empirical comparison of the day of the week effect
in the major European markets from July 1977 to March 2004, and included not only returns but
volatility as well.
To begin with, we should note that most European markets do not reflect a day of the week effect
since the results for each day do not differ significantly from the other days of the week. The returns in
these markets are based on representative indexes and reveal independence concerning which day of
the week the return is calculated on. Nevertheless a seasonal effect can be observed on Mondays for
the French and Swedish markets. The Swedish markets also reflects a significantly higher return on
Fridays as opposed to the remaining days of the week.
With respect to the existence of abnormal volatility in the equation of conditional variance in the
European markets, the following can be observed . A day of the week effect is present in all of the
financial markets except in Portugal and the Czech Republic, where a symmetric model is applied.
Exceptions are found in France and the Czech Republic, using an asymmetric T-ARCH model.
Nevertheless, this effect does not agree with other analysed financial markets. However if we introduce
a parameter which accounts for different behaviour in the volatility of the stock market indexes, then
continuity in the day of the week effect becomes evident, differentiating the rise and fall of prices. Its
presence is unlike that of the GARCH model because the statistical significance of the day of the week
in the symmetric model in some cases could have been affected by asymmetric effects that were
considered in the structure of the variance in the model.
Seasonality in conditional volatility in specific markets follow a similar behaviour pattern
independent of the type of model that is being used. Mondays and Thursdays are more uncertain than
on Wednesdays, while the Wednesday measure is lower than that of Tuesdays and Fridays.
6

Except on mondays in the United Kingdom.

62

International Research Journal of Finance and Economics - Issue 2 (2006)

Even though initially there does not seem to be a day of the week effect in yields from different
European markets, an analysis of the conditional variance verifies that the extreme shifts observed in
the major stock markets of each country indicate the absence of complete integration among all
markets. This finding can be useful for an investor who is looking for investment instrument
opportunities based on the change in volatility of these financial markets during specific days of the
week.

International Research Journal of Finance and Economics - Issue 2 (2006)

63

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International Research Journal of Finance and Economics - Issue 2 (2006)

65

Appendix
Table A1: Significant Coefficients: return equation

France

D1

D2

D4

D5

0,0013

--

--

--

--

--

0,0019

(0,0748)
Sweden

0,0018
(0,0171)

(0,0110)

Note: Statistical probability shown in parentheses

Table AII: Significant Coefficients: variance equation (GARCH)

D1
Germany

--

Austria

--

Belgium

--

Denmark
Spain
France
Holland
Italy

2,87E-05
(0,0039)
4,70E-05
(0,0075)
-3,41E-05
(0,0860)
5,91E-05
(0,0043)

Portugal

--

U. K.

--

Czech Rep.

--

Sweden

--

Switzerland

3,42E-05
(0,0171)

Note: Statistical probability shown in parentheses

D2
-7,69E-05
(0,0000)
-2,15E-05
(0,0333)
--------2,40E-05
(0,0679)
--5,13E-05
(0,0025)
--

D4
---

D5
-7,45E-05
(0,0000)
-1,96E-05
(0,0948)

2,33E-05

1,26E-05

(0,0017)

(0,0826)

-5,02E-05
(0,0048)
4,26E-05
(0,0707)
4,83E-05
(0,0077)
4,58E-05
(0,0134)

-1,87E-05
(0,0592)
-----

--

--

--

--

--

--

-3,84E-05
(0,0024)

-4,71E-05
(0,0237)
--

66

International Research Journal of Finance and Economics - Issue 2 (2006)

Table AIII: Significant Coefficients: variance equation (T-ARCH)

Germany
Austria
Belgium
Denmark

Spain

France
Holland
Italy
Portugal
U. K.
Czech Rep.
Sweden
Switzerland

0.1186
(0.0000)
0.1327
(0.0009)
0.0819
(0.0022)

D1
----

0.0841

2,54E-05

(0.0050)

(0,0809)

0.1173

4,40E-05

(0.0000)

(0,0425)

0.1113
(0.0001)

--

0.0795

4,30E-05

(0.0069)

(0,0618)

0.0959

6,14E-05

(0.0018)

(0,0037)

0.2041

1,78E-05

(0.0001)

(0,0960)

0.1205

-2,13E-05

(0.0000)

(0,0777)

--

D2
-5,29E-05
(0,0000)
-2,11E-05
(0,0335)
-1,91E-05
(0,0239)

D4

D5

--

--

---

--

--

--

3,88E-05

-1,92E-05
(0,0951)
--2,20E-05
(0,0832)
--

(0,0256)
----

-4,91E-05
(0,0033)
4,74E-05
(0,0103)

----

--

--

--

--

--

--

--

--

--

--

0.1247

3,79E-05

-7,49E-05

5,34E-05

-6,27E-05

(0.0000)

(0,0797)

(0,0005)

(0,0749)

(0,0034)

0.1479

2,67E-05

(0.0000)

(0,0586)

Note: Statistical probability shown in parentheses

--

3,02E-05
(0,0169)

--

International Research Journal of Finance and Economics - Issue 2 (2006)

67

Table AIV: ARCH-LM Test (GARCH)

Lags
5
10
20
Lags
5
10
20
Lags
5
10
20

Germany

Austria

Belgium

Denmark

Spain

1,2193

0,5734

0,4220

0,4639

-1,9077

(0,2229)

(0,5664)

(0,6730)

(0,6428)

(0,0566)

-2,7592

0,6848

-0,3135

-0,1511

-0,8825

(0,0059)

(0,4935)

(0,7539)

(0,8799)

(0,3776)

0,1624

0,3160

0,7467

1,8406

-1,1617

(0,8710)

(0,7520)

(0,4553)

(0,0658)

(0,2455)

France

Holland

Italy

Portugal

U. K.

-1,2113

-1,6861

-0,5428

-0,6178

0,5365

(0,2259)

(0,0919)

(0,5873)

(0,5368)

(0,5916)

-0,7921

-1,4239

-2,4632

-1,6702

-1,2154

(0,4284)

(0,1546)

(0,0139)

(0,0950)

(0,2244)

0,1923

-1,0976

-3,1513

0,0500

-0,9522

(0,8475)

(0,2725)

(0,0017)

(0,9601)

(0,3411)

Czech Rep.

Swedewn

Switzerland

1,0673

-0,2977

-0,8796

(0,2860)

(0,7659)

(0,3792)

-1,8715

-0,8992

-1,4023

(0,0614)

(0,3687)

(0,1610)

-0,5128

-0,7089

-0,5414

(0,6081)

(0,4784)

(0,5882)

Note: Statistical probability shown in parentheses

68

International Research Journal of Finance and Economics - Issue 2 (2006)

Table AV: Standardised residuals: Q statstic (GARCH)

Lags
5
10
20
Lags
5
10
20
Lags
5
10
20

Germany

Austria

Belgium

Denmark

Spain

2,068

1,213

4,868

4,349

5,401

(0,840)

(0,545)

(0,301)

(0,361)

(0,369)

4,337

5,434

8,427

10,05

9,535

(0,931)

(0,607)

(0,492)

(0,346)

(0,482)

17,68

24,16

22,41

18,66

13,61

(0,608)

(0,115)

(0,264)

(0,478)

(0,849)

France

Holland

Italy

Portugal

U. K.

7,508

4,751

5,830

5,896

5,080

(0,186)

(0,447)

(0,212)

(0,117)

(0,279)

11,03

11,44

10,83

16,52

12,10

(0,355)

(0,324)

(0,287)

(0,035)

(0,208)

20,11

17,55

18,85

31,11

18,69

(0,451)

(0,617)

(0,466)

(0,028)

(0,477)

Czech Rep.

Swedewn

Switzerland

5,354

2,632

5,301

(0,253)

(0,621)

(0,258)

8,060

5,637

8,511

(0,528)

(0,776)

(0,483)

24,66

14,77

20,70

(0,172)

(0,737)

(0,353)

Note: Statistical probability shown in parentheses

International Research Journal of Finance and Economics - Issue 2 (2006)

69

Table AVI: ARCH-LM Test (T-ARCH)

Lags
5
10
20
Lags
5
10
20
Lags
5
10
20

Germany

Austria

Belgium

Denmark

Spain

0,044

0,006

0,016

0,019

-0,049

(0,113)

(0,756)

(0,625)

(0,520)

(0,002)

-0,037

0,015

-0,003

-0,001

-0,013

(0,045)

(0,459)

(0,875)

(0,953)

(0,498)

0,012

0,005

0,021

0,047

-0,020

(0,635)

(0,821)

(0,448)

(0,115)

(0,245)

France

Holland

Italy

Portugal

U. K.

-0,013

-0,030

-0,005

-0,009

0,019

(0,501)

(0,076)

(0,852)

(0,715)

(0,523)

-0,010

-0,025

-0,033

-0,021

-0,026

(0,644)

(0,251)

(0,089)

(0,338)

(0,195)

0,009

-0,023

-0,049

0,016

-0,018

(0,694)

(0,182)

(0,003)

(0,444)

(0,400)

Czech Rep.

Swedewn

Switzerland

0,050

0,002

-0,006

(0,282)

(0,907)

(0,775)

-0,031

-0,021

-0,014

(0,059)

(0,293)

(0,477)

-0,008

-0,012

-0,025

(0,660)

(0,686)

(0,212)

Note: Statistical probability shown in parentheses

70

International Research Journal of Finance and Economics - Issue 2 (2006)

Table AVII: Standardised residuals: Q statstic (T-ARCH)

Lags
5
10
20
Lags
5
10
20
Lags
5
10
20

Germany

Austria

Belgium

Denmark

Spain

-0,007

-0,018

-0,021

0,029

0,005

(0,684)

(0,602)

(0,296)

(0,334)

(0,255)

0,002

0,044

0,014

0,013

0,007

(0,893)

(0,587)

(0,533)

(0,354)

(0,342)

0,056

0,019

0,023

-0,010

0,036

(0,500)

(0,095)

(0,331)

(0,517)

(0,689)

France

Holland

Italy

Portugal

U. K.

-0,035

-0,024

-0,022

0,018

-0,039

(0,086)

(0,446)

(0,168)

(0,144)

(0,246)

0,003

0,011

-0,016

0,044

-0,030

(0,233)

(0,275)

(0,193)

(0,028)

(0,199)

0,051

0,035

0,033

0,031

-0,007

(0,247)

(0,557)

(0,366)

(0,017)

(0,509)

Czech Rep.

Swedewn

Switzerland

-0,014

-0,015

-0,044

(0,244)

(0,801)

(0,122)

0,025

0,003

0,031

(0,463)

(0,883)

(0,274)

-0,033

0,010

0,060

(0,148)

(0,857)

(0,196)

Note: Statistical probability shown in parentheses