Investigating day-of-the-week effect in stock returns: Evidence from Karachi stock exchange ; Pakistan

This paper investigates Day-of-the-Week Effect in stock returns in the primary equity market Karachi Stock Exchange (KSE) of Pakistan by employing OLS regression approach. Data consists of daily closing prices of KSE-100 Index from January 01, 2004 to December 30, 2011. A traditional method of finding Day-of-the-Week Effect has been comprised of only one regression equation. Contrary to this plausible methodology, this paper proposes five separate models to statistically find significant effect on each trading day of the week. Non-parametric Kolmogorov-Smirnov (K-S) test confirms abnormal distribution of returns. Robust Standard Error addresses heteroscedasticity of returns; proved by abnormal distribution. The t- statistics tests significance of â coefficients and One Factor ANOVA tests the hypotheses related to significant difference of mean returns. Findings conclude mixed results due to the effect of political instability on the anomaly. No effect found in Sub Period I. While, negative Monday and Positive Friday effects revealed in Sub Period II; result consistent with the findings of Fields (1931), Cross (1973), French (1980) and Haroon (2005).