Day of the week anomaly (Monday Effect) – How to do it? – Anomali Monday Effect / Day of the Week – Bagaimana melakukan risetnya?

Day of the week anomaly (Monday Effect) – How to do it?

Day of the week anomaly or more known as Monday Effect is one of calendar anomalies in financial market. It states that the stock market returns on Monday is significantly different from other day. This anomaly is proposed by Kenneth French in 1980, and his research paper was published in Journal of Financial Economics. The appearance of Monday Effect is an evidence of market inefficiency. Yet, in French (1980) paper, he suggested an arbitrage profit or mispricing profit from this anomaly. He further surmises “Although an active trading strategy based on the negative expected returns would not have been profitable because of transactions costs, investors could have Increased their expected returns by altering the timing of trades which would have been made anyway – delaying purchases for Thursday Friday until sales scheduled Monday on preceding Friday”

 

What theory to be used?

Monday effect is an evidence of market inefficiency. Hence, it has to start from Market Efficiency theory of Fama (1965). In other words, research in Monday Effect argues Market Efficiency theory instead of supporting it. There is also closed-market hypothesis which is part of Market efficiency theory. It states that the negative returns occur only on Monday due to the closed-market effect, where the expected return will be lower following holidays as well as weekends. This closed-market effect is been used as underpinning theory for other calendar anomalies such as holiday effect, September effect, Christmas effect, intra-day trading effect, and other anomalies. Other theories that can be used are mispricing and sentiment.

 

How to do it?

Day of the week anomaly or Monday Effect model follows the dummy regression model. Most research uses or modifies French (1980) model for it. The first step is the calculation of return. It has to be daily return. The return is the dependent variable. Next step is to have dummy variable for each day. If that day is Monday, give “1”, otherwise 0. If that day is Tuesday, give “1”, otherwise 0. Do the same for the other days. See picture below:

data DOWA

Be careful with Saturday or Sunday (because there is no trading during that day). So, you have to exclude it.

Then run the data using the following equation:

dowa model

Where the intercept/constant represents the Monday effect. Meanwhile, the beta coefficients from Tuesday to Friday represent the difference between expected return for Monday and the expected return for each day of the week. The negative sign of constant coefficient is the indication for Monday Effect, and it has to be significant at 5% level. Kindly note that other research papers in Monday effect still put Monday on the model, and eliminate the constant to avoid the Dummy Trap issue

 

Further research

You may use Monday effect model test whether certain events are occurred in certain day, and the returns or risks f that occasion are significantly different from other days. For example, you can test Monday effect of temperature meaning to say that Monday returns are significantly from other days due to Monday temperature. You can test also Monday effect on market integration. For example, you want to reveal whether market is more integrated in Monday compared to other days.

 

Anomali Monday Effect / Day of the Week – Bagaimana melakukan risetnya?

Monday Effect adalah salah satu anomali kalender di pasar keuangan. Anomali ini memiliki dua bentuk. Bentuk pertama adalah bahwa tingkat pengembalian saham (returns) pada hari Senin secara signifikan berbeda dari hari lainnya.

Anomali ini diusulkan oleh Kenneth French pada tahun 1980, dan makalah penelitiannya diterbitkan dalam Journal of Financial Economics. Munculnya Efek Senin (Monday Effect) ini adalah bukti ketidakefisienan pasar. Namun, French (1980), menyarankan investor mungkin saja mendapatkan laba arbitrase atau laba mispricing dari anomali ini. Dia lebih lanjut menduga “Meskipun strategi perdagangan aktif berdasarkan pada pengembalian yang diharapkan negatif tidak akan menguntungkan karena biaya transaksi, investor bisa meningkatkan pengembalian yang diharapkan dengan mengubah waktu perdagangan yang seharusnya dilakukan – menunda pembelian untuk Kamis Jumat. hingga penjualan dijadwalkan hari Senin pada hari Jumat sebelumnya “

 

Teori apa yang harus digunakan?

Monday Effect adalah bukti ketidakefisienan pasar. Oleh karena itu, penelitian Monday effect harus dimulai dari teori Efisiensi Pasar dari           Fama (1970). Dengan kata lain, penelitian Monday Effect ini bukan pendukung teori Efisiensi Pasar. Ada juga hipotesis pasar tutup (Closed-Market hypothesis)  yang merupakan bagian dari teori efisiensi Pasar. Teori ini menyatakan bahwa pengembalian negatif hanya terjadi pada hari Senin karena efek pasar yang tutup hari sebelumnya, di mana pengembalian yang diharapkan akan lebih rendah setelah hari libur serta akhir pekan. Efek pasar tertutup ini telah digunakan sebagai teori pendukung untuk anomali kalender lainnya seperti holiday effect, September effect, Christmas effect, intra-day trading effect, dan anomali lainnya. Teori lain yang dapat digunakan adalah mispricing dan sentimen. Bisa juga menggunakan teori perilaku seperti Brahmana et al (2012)

 

Bagaimana cara melakukannya?

Model estimasi Monday Effect mengikuti model regresi dummy. Sebagian besar penelitian menggunakan atau memodifikasi model French (1980) untuk itu. Langkah pertama adalah perhitungan pengembalian (returns). Returns harus dihitung untuk setiap hari, dan ia adalah variabel dependen (terikat). Langkah selanjutnya adalah memiliki variabel dummy untuk setiap hari. Jika hari itu adalah hari Senin, berikan “1”, jika tidak 0. Jika hari itu adalah hari Selasa, berikan “1”, sebaliknya 0. Lakukan hal yang sama untuk hari lainnya. Lihat gambar di bawah ini:

data DOWA

Hati-hati dengan hari Sabtu atau Minggu (karena tidak ada perdagangan selama hari itu). Jadi, Anda harus mengecualikannya.

Kemudian jalankan data menggunakan persamaan berikut:

dowa model

Di mana intercept / constant mewakili Monday Effect. Sementara itu, koefisien beta dari Selasa hingga Jumat mewakili perbedaan antara returns untuk hari Senin dan returns untuk setiap hari lainnya dalam seminggu. Tanda negatif dari koefisien konstan adalah indikasi untuk Monday Effect, dan konstant itu harus signifikan pada tingkat 5%. Harap dicatat bahwa makalah penelitian lain dalam efek Senin masih meletakan Senin pada model (tidak dibuang seperti model di atas), dan menghilangkan konstanta untuk menghindari masalah Dummy Trap

 

Penelitian lebih lanjut

Anda dapat menggunakan tes model Monday effect untuk penelitian lainnya. Misalnya, Anda dapat menguji Monday Effect dengan cara mengkaitkannya dengan cuaca. Anda dapat menguji juga Monday Effect pada integrasi pasar. Misalnya, Anda ingin mengungkapkan apakah pasar lebih terintegrasi pada hari Senin dibandingkan dengan hari lainnya

 

You may refer to these literatures for further research:

Brahmana, R. K., Hooy, C. W., & Ahmad, Z. (2012). Weather, investor irrationality and day-of-the-week anomaly: case of Indonesia. Journal of Bioeconomics14(2), 129-146. (LINK: https://link.springer.com/article/10.1007/s10818-011-9107-z )

Brahmana, R., Hooy, C. W., & Ahmad, Z. (2012). THE ROLE OF HERD BEHAVIOUR IN DETERMINING THE INVESTOR’S MONDAY IRRATIONALITY. Asian Academy of Management Journal of Accounting & Finance8(2). (LINK: https://www.researchgate.net/profile/Rayenda_Brahmana/publication/286807057_The_role_of_herd_behaviour_in_determining_the_investor%27s_Monday_irrationality/links/571dc99a08aee3ddc56ad01c/The-role-of-herd-behaviour-in-determining-the-investors-Monday-irrationality.pdf )

Brahmana, R., Hooy, C. W., & Ahmad, Z. (2012). Bad News Announcement on Investor’s Monday Irrationality: Insight from Malaysia. Journal of Indonesian Economy and Business27(2), 210-223. (LINK: https://journal.ugm.ac.id/jieb/article/view/6247 )

Brahmana, R. K., Hooy, C. W., & Ahmad, Z. (2015). Moon Phase as the Cause of Monday Irrationality&58; Case of Asean Day of the Week Anomaly. The International Journal of Economic Behavior4(1), 51-65. (LINK: http://www.ingentaconnect.com/content/doaj/20695756/2014/00000004/00000001/art00005 )

Brahmana, R., & Asmar, M. (2011). Does Integration Occur on a Certain Day? The Case of the Lithuanian Stock Market. South East European Journal of Economics and Business6(2), 13-21.  (LINK: https://content.sciendo.com/view/journals/jeb/6/2/article-p13.xml )

 

Reference:

Khresna Brahmana, R., Hooy, C. W., & Ahmad, Z. (2012). Psychological factors on irrational financial decision making: Case of day-of-the week anomaly. Humanomics28(4), 236-257. (LINK: https://www.emeraldinsight.com/doi/full/10.1108/08288661211277317 )

French, K. R. (1980). Stock returns and the weekend effect. Journal of financial economics8(1), 55-69. (LINK: https://s3.amazonaws.com/academia.edu.documents/32640911/324194_2_Stock-Returns-and-weekend-effect.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&Expires=1526721710&Signature=6AY83yJiO4M7fujhkaJYjA0q5QM%3D&response-content-disposition=inline%3B%20filename%3D324194_2_Stock-Returns-and-weekend-effec.pdf )

Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The journal of Finance25(2), 383-417. (LINK: http://www.jstor.org/stable/2325486?seq=1#page_scan_tab_contents )

Heteroscedasticity in SPSS – Uji Asumsi Klasik Heteroskedastisitas di SPSS

Heteroscedasticity in SPSS

Hi! One of the test for CLRM assumption is Heteroscedasticity. Testing it in E-views or Stata for Time-Series or Panel data is easy because the software provides the command. You just need to click this and that, then the heteroscedasticity will be out. However, testing it under SPSS software (perhaps cross-sectional data) it needs a work.

Below is the process to run it. Note that you need to copy paste the macro syntax below to run it. We use Breusch-Pagan and Koenker Test for it. The procedure is as follow: Continue reading

Herding in financial Market: How to do it? – Herding/ Mengekor di Pasar keuangan: Bagaimana melakukannya?

Herding in financial Market: How to do it?

Remember a folk story about pied piper of Hamelin (https://en.wikipedia.org/wiki/Pied_Piper_of_Hamelin) ? Once upon a time, Hamelin town was full of rats. Yet, the pied piper has solution for this rat issue. He promised to drowned all rats and the city has to pay him 1000 golds. After mayor of Hamelin agreed, the piper played his pipe and lured the rats into Weser river, and all rats were drowned (except one rat). How? All rats HERD him because of the music. I don’t want to continue the story because it is a sad story.

This herd behavior is also occurred in financial market. Yes, herding is trading behavior of investor by copying the behavior of other investors. Continue reading

Women on Board Effect: How to do it? Perempuan dalam Dewan Direksi: Bagaimana melakukan risetnya?

Women on Board Effect: How to do it?

Women on Board research is an interesting research considering the issue of gender equality. However, the role of women in firms has not extensively and empirically discussed like other corporate governance issues. Research has found that women may change the board room situation because women are more cautious than male on board in corporate decisions making (Huang and Kisgen, 2013 and Levi et al., 2013). Laura Tyson, a former economic adviser to US President Bill Clinton, recommended the improvement of board diversity to increase firm’s financial performance through the number of women on board (Tyson, 2003). Adams and Ferreira (2009) studied 1500 companies at United States from 1996-2003, and found female directors have significant impact on corporate performance of firms with weak shareholders right. They stated that female directors are more likely to monitor their committees. As the greater the gender diversity, the directors have fewer attendance problem. Therefore, this issue should be explored more in the future
Continue reading

Wednesday is my blogging day!

Hi All,

It has been a long time not writing anything for this blog. Sorry for that.

I have planned to blog every Wednesday, and occasionally on Saturday. Most likely, it will be about research and research.

I will try my best to post in Indonesia or perhaps both English and Indonesia.

So, please remember this:

“WEDNESDAY IS MY BLOGGING DAY”

Easy Way to Track your Paper Submission

Hi!

I know each of us has different way to track our paper submission. I Still use traditional way to track mine. For instance, i made a column in the excel that will show the reminder to notify the editor about the progress of the paper.

This is my excel file for you to track your paper submission. Hopefully, it is useful

Cheers,

Rayenda

paper tracking in excel_Brahmana

Call for Paper – List for Social Science 2017

One of strategies in publication game is aiming call-for-paper. Therefore, I compile call-for-paper from major publishers. Please download the list here. Note that this list is only for social science, specifically, accounting, business, economics, finance, management, sociology, politics, and other social science fields

Thank you

Regards,

Rayenda Brahmana

 

call for paper list per april 2017_rayenda