The Day Of The Week Effect: An Analysis Of The Johannesburg Stock Exchange Top 40 Firms

Abstract

This study investigates the existence of the Day of the Week (DoW) effect on returns and volatility on the Johannesburg Stock Exchange (JSE), with a specific focus on the market’s Top 40 firms (Top40). It is the most ‘micro’ analysis of the DoW effect conducted to date, as previous literature has only explored the effect on market and index levels. While this paper focuses on a firm-specific level, it also makes a comparison with the DoW effect on the All-Share Index (ALSI) and Top40 Index (TOPI).

Drawing on Borges’ (2009) study, this paper investigates whether a DoW effect exists on a specific day compared with the rest of the week. This is achieved by regressing returns on each day of the week separately. GARCH estimation models are used to test for a DoW effect with regards to variance in share returns. The initial findings show that neither the ALSI nor the TOPI have any significant DoW effects. However, a more micro examination reveals that ten of the Top40 firms have significant DoW effects on at least one day of the week. The investigation reveals no significant DoW effects with regards to volatility, which highlights that the constituents of the Top40 typically achieve consistent returns compared to other listed companies.