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Estimation of the Day of the Week Effect on Stock Market Volatility in the U.S. Manufacturing Sector using GARCH and EGARCH models

Kasai, Katsuya (2012): Estimation of the Day of the Week Effect on Stock Market Volatility in the U.S. Manufacturing Sector using GARCH and EGARCH models.

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Abstract

This paper carried out two main studies: Part 1 attempted to conduct a set of tests for weak form efficiency (WFE); Part 2 tried to estimate day of the week effect using GARCH and EGARCH models. The principal objective of this paper, hence, is to test the weak-form efficiency for selected three stocks (Molex Incorporated, Monro Muffler Brake, Inc., and Monterey Gourmet Foods, Inc.) and two stock indices (NYSE/AMEX/NASDAQ index capitalisation-based Deciles 1 and 10). As for Part I, this paper identified that there are negative trends on Monday and Wednesday and positive trends are found on Friday. This result also follows the general finding of existing literature. Likewise, the results for Part II showed that Monday, Wednesday, and Friday had negative trends although the sizes of coefficients are small. In addition, different from aforementioned three, returns on Tuesday is significant and positive. Overall, the results seem to provide ample evidence of day of the week effect on stock market volatility.

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