Common and local asymmetry and day-of-the-week effects among EU equity markets

Abstract

In line with the integration of financial markets it is expected that anomalies and other characteristics of equity markets become more similar. This paper specifically examines how much of the asymmetry and the day-of-the-week effect is common to the European markets and how much is country specific. The day-of-the-week effects are measured for both unconditional and conditional expected returns and volatilities. Robustness of the results is analysed using two sub-periods. The conditional model accounts for asymmetry in first-order autocorrelation of both the common European market index and the country-specific indexes. The time period spans from January 2000 through December 2006. The results indicate that the asymmetry, especially in volatility, is a common characteristic carried by the European market index, whereas the conditional day-of-the-week effects are local, robust and country specific.

Keywords:

• Day-of-the-week effect
• Asymmetry
• European equity markets

Acknowledgements

The authors wish to thank the Evald and Hilda Nissi foundation and the Bröderna Ernst och Lars Krogius research foundation for financial support. We also wish to thank the editor, Richard Ayayi, Hakan Berument, and two anonymous reviewers for valuable discussion and suggestions.

Notes

†For example, McInish and Wood (1985), Kim (1988), Lakonishok and Smidt (1988), Choy and O’Hanlon (1989), Kato (1990), Wong et al. (1992), Chang et al. (1993), Athanassakos and Robinson (1994), Ho and Cheung (1994), Dubois and Louvet (1996), Aggarwal and Schatzberg (1997), Tang (1997), Kohers et al. (2004), Hui (2005), Keef and Roush (2005) and Mazumder et al. (2006).

‡For example, Gibbons and Hess (1981), Jaffe and Westerfield (1985a,b), Junkus (1986), Ho (1990), Kamath (1992), Martikainen and Puttonen (1996), Wang et al. (1997), Davidson and Faff (1999), Steeley (2001), Oguzsoy and Guven (2003), Brusa et al. (2003), Ajayi et al. (2004) and Galai and Kedar-Levy (2005).

§For example, Connolly (1989), Easton and Faff (1994), Kamath et al. (1998), Al-Loughani and Chappell (2001), Poshakwale and Murinde (2001), Tu (2003), Gregoriou et al. (2004) and Tonchev and Kim (2004).

¶For example, Kiymaz and Berument (2003).

⊥For example, Keim and Stambaugh (1984), Balaban et al. (2001), Berument and Kiymaz (2001), Demirer and Karan (2002), Bhattacharya et al. (2003) and Dicle and Hassan (2006).

∥For example, Condoyanni et al. (1987), Brooks and Persand (2001) and Cai et al. (2006).

††For the European index it is difficult to find a corresponding market index for measuring conditional day-of-week patterns. This anomaly will be mixed in a world market index due to differences in open hours of the markets. However, for robustness checking an alternative EGARCH-in mean specification is also estimated. One problem with this specification is the mixing of the day-of-the-week patterns of the first two moments.

†The empirical results for the alternative EGARCH-in mean model gave the same result: no day-of-the-week effect in the European index. We prefer to report the results for model specification (1) where the day-of-the-week effects are measured separately for the first and second moments.