Investigating the Day of the Week Market Anomaly at the Nairobi Securities Exchange

Abstract

The efficient market hypothesis states that stock prices are a reflection of all available market knowledge, including historical, openly available, and proprietary data. Investors ought to anticipate making just typical profits in a market that operates effectively by receiving a typical rate of returns on their investment. The day of the week anomaly poses an interesting contradiction to this hypothesis as it suggests that returns on the stock exchange are unevenly distributed throughout the different days of the week, this would mean that investors would be able to make above normal profits and hence suggest that the market is inefficient. The day of the week anomaly is the name given to this phenomenon. This phenomenon has been dubbed the Monday, Friday, and weekend effects by other studies. Financial Studies has noted that Monday stock returns tend to be lower compared to other days in weeks. Similar to this, Friday equity returns are greater than those of the remaining business days in the workweek. In order to determine if the particular day of the week anomaly is real, this study examines the Kenyan stock market. The stock returns are calculated using daily market capitalization, and multiple regression analysis is performed for the period of July 1, 2018, to June 30, 2019. The research excluded weekends and public holidays that fall between Monday and Friday. According to the outcomes, Wednesday has the largest negative returns and Tuesday has the greatest positive returns. The volatility of stock returns peaks on Thursday and troughs on Monday. Tuesday was determined to have a p-value of less than 5%, indicating statistical significance and supporting the existence of the day-of-week anomaly at the Nairobi Securities Exchange. The study established calendar anomalies found in developed world trading are also at play in developing economies markets as was found in the study to be for NSE. The information on the trading day anomaly should be availed to traders in Kenya This allows investors to exploit these irregular patterns in the market by designing trading strategies, which can enhance their market predictability. The study recommends that investors do carry out fundamental and technical analysis in order to identify the key factors that affect stock returns at the NSE.