The Latest Research On The Day Of The Week Effect In Chinese A-share Markets

Efficient market hypothesis is the prop theory of modern finance. Along with a lot of reflections, researchers found many strange phenomena have not been explained by EMH. The day of the week effect is one of the many financial anomalies. The research of the day of the week effect includes two aspects, one is the performances, and the other is the explanations. The day of the week effect is now still a puzzle because many explanations are unsatisfied although a lot of creative explorations have been proposed. Domestic researches only calculated the results,but the explanations were quite weak.This paper defines the day of the week effect as the systemic and significant difference of average returns in a week, finds the returns in a week not only behaves the"Monday Effect", such as the widely existing"Tuesday Effect", and extracts ten kinds of hypotheses from the foreign explanations.This paper analyses the rules of the day of the week effect based on the classification of bull market and bear market in detail, then explores the rationality by the above partition in the research of the day of the week effect according to the rolling example tests. Using the latest data and the model of GARCH(1,1)-GED we find the day of the week effect is weak in bear markets and strong in bull markets. The rules of the day of the week effect are almost the same in the two periods of bull markets, while different in bear markets. The distributions of the day of the week effect are just like the word"W"in the two bull markets, as well as"N"in the bear market. We propose investor sentiment hypotheses independently for the first time and explain the day of the week effect well with the survey data of CCTV as sentimental variables.Then this paper dwells on the relationships between the day of the week effect and the sizes of firms based on CITIC Style index and finds the relationships are significant in bull markets and bear markets. The close to open returns is obviously distinct from the close to close returns with different sizes, but the open to close returns is consistent with the close to close returns. Only parts of sizes behave of asymmetry with the impacts of information. This paper links the day of the week effect, cross sectional returns with investor sentiment for the first time, proposes and proves investor sentiment is an important factor of the day of the week effect on cross sectional returns. By researching the sentiment on returns, we find the rule of the day of the week effect on returns is almost the same with the effect of sentiment on cross sectional returns. That is to say, in the same periods the stocks of those with highly subjective valuations (Baker ,2006), such as the stocks with low market value or small cap, no profits or little profits , high PE, are tend to be affected by sentiment, of which the day of the week effect is stronger, and vice versa.