Anomalies in Indian stock market: Evidence of the day-of-the-week effect with reference to national stock exchange, India

Efficient Market Theory (EMT) states that, the prices in the stock market depict all relevant information, therefore it is impossible to beat the market as an investor is fully informed. Till the late seventies this view was supported by many empirical studies and many market models related to security valuation have been based on the concept of informational efficiency of capital market. However, late seventies and eighties brought in evidence questioning the validity of market efficiency and highlighting the anomalies existed in the stock market. One of the anomalies observed against the EMT is the day of the week effect. This effect relates to the difference in the returns across different days of the week. This paper examines the days of the week effect in the two sectoral indices of National Stock Exchange, India for the period from 1^st April 2009 to 31^st March 2011. Daily stock prices are converted in to daily returns by taking natural log of the difference in the price at day t and the price at day t-1. To test the equality of means for different days of the week Kruskal-Wallis H test is used. The study discovered that three companies in Auto sector and four companies in Pharma sector had highest mean returns on Wednesdays. While subjecting the daily stock returns to KWH test, during the study period it is found that the mean returns are statistically significant on Wednesday only in Auto sector.