The weekend effect: Evidence from the Nairobi securities exchange

Abstract

The Monday or weekend effect is the belief that securities market returns on Mondays are consistently less than the other days of the week, and are often negative. Many studies have documented it since the nineteen-twenties, though, no theory has adequately explained the reasons it exists. Studies conducted have suggested the existence of a Monday effect for a diverse range of securities, from equities to debt to commodities. This study was a confirmatory quest to establish whether this phenomenon is prevalent among the securities traded on the Nairobi Securities Exchange. Further it sought to establish the nature of the manifestation of this weekend effect if it exists. This was to be investigated b finding how the weekend returns relate to the weekly return average. The period of study spanned the five years beginning January 2007 to December 2011 and covering all the listed firms during that period. This study used the regression analysis model that utilized the weekly average returns as the dependent variable and the Monday returns as the independent variable. The regression intercept of the relation was found to be zero. The values of the returns showed that 56.4% of the weekends had negative returns which meant that during such weekends Monday stock prices were less that the Friday prices of stock. The returns that were positive and could not round to zero were 20%. This means some weeks experienced the weekend effect that produced negative returns irrespective of the average of the week while in other weeks the weekend effect manifested by having returns higher that the weeks average.