An Econometric Analysis of Market Anomaly - Day of the Week Effect on a Small Emerging Market

The research about the existence of seasonal behavior in return and volatility of Macedonian Stock Exchange is done. Under different model specifications the hypothesis if mean returns are significantly different in the five trading days is tested. The evidence of existence of predictable pattern or market inefficiency can be used for profitable market strategy or forecasting of the predictable movements in asset prices can provide investors with opportunities to generate abnormal returns. The results differ under different model specifications. While simple single ANOVA model and dummy variable regression using OLS methodology, could not find enough evidence to reject the null hypothesis, or mean returns are not significantly different in the five trading days, the more advanced models like GARCH (1,1), EGARCH and modified M-GARCH (1,1) and M-EGARCH, found evidence about existence of a day of the week effect on Thursday.