The day-of-the-week effect on global stock market volatility after a market shock

ABSTRACT

This paper suggests new evidence for the recent surge of the day-of-the-week effect on market volatility after a stock market shock. Using global market indices, this study revisits the day-of-the-week effect on market volatility and provides the first evidence of Tuesday’s low volatility after the COVID-19 shock. We also find no evidence of a day-of-the-week volatility effect from the analysis of the pre-COVID-19 period. Overall, our results provide implications for the investment decision-making and risk management of portfolio managers after a market shock.

KEYWORDS:

• Day-of-the-week effect
• stock market volatility
• market shock
• COVID-19 pandemic
• market risk management

JEL CLASSIFICATION:

• G10
• G15

Acknowledgments

This paper won the Best Paper Award in the 2021 Academic symposium sponsored by the Korean Financial Management Association (KFMA) in November 2021. We thank Junho Hwang (NPRI), Sangbin Lee, Jongwon Park, and participants in the 2021 KFMA Academic symposium.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The MSCI World Index captures large and mid-cap representation across 23 developed markets (DM).

² We set the starting point of the analysis period to January 2003 for the following reasons: 1) return data of all four indices are available, and 2) data for estimating market volatility as defined by us are available.

³ The results of Tukey’s pairwise comparison test also support our results. We find no significant evidence that Tuesday’s market volatility is lower than that of other days of the week during the entire sample period and in the pre-COVID-19 period.

⁴ Thanks to the anonymous reviewer for the helpful comments.