Day of the Week Effect on

Gold Returns

Research Paper

Presented by: Sunita Arora

Assistant Professor
Department of Commerce
Government College for Women
Rohtak
Under the Guidance of: Dr. Narender Kumar
Professor
Department of Commerce
M D University
Rohtak

Electronic copy available at: http://ssrn.com/abstract=2229290

Day of the Week Effect on Gold Returns

Abstract:
Day of the week effect has vastly been investigated for stock markets, but commodity
markets have got less attention in this regard. Present study is an attempt to investigate
the day of the week effect on gold futures return. For the purpose of study, opening and
closing prices of gold futures contract, traded on Indias largest commodity exchange i.e.
Multi Commodity Exchange of India Limited (MCX), have been analysed with the help
of dummy variables. Daily return from close to close prices was calculated and was
further decomposed into trading period return and non trading period return. Gold is
traded on MCX six days a week, from Mondays through Saturdays; therefore dummies
for all the six days have been applied. Period of study spans from 1st April 2006 to 31st
March 2012. Data has been analysed by applying linear regression of dummy variables
on return. But after applying linear regression, ARCH effect was found to be left. To
account for ARCH effect, GARCH(1,1) model was applied. Extreme value analysis was
also carried on with the help of chi-square test. Presence of day of the week effect was
found in all the three types of return series, but the impact was more during non trading
period than during trading period. Results of the study may be useful for commodity
market players in timing their trading.
Key Words: Commodity market, Day of the week effect, Trading Period Return,
Non-Trading Period Return, Heteroskesdasticity.
JEL Classification: G14.
Introduction:
Efficient market hypothesis implies that asset prices should move randomly and there
should not be a pattern, on the basis of which market participants are able to earn
abnormal returns. This implies that the return for an asset in an efficient market should
not be predictable and there should be no seasonality in the returns of an asset i.e. return
for different periods e.g. different periods of a day, different days of a week, different
weeks of a month and different months of a year should not be different. If return for
different trading periods is same, return generating process is said to be following trading
time model and if return is same for different time periods, whether tading or non-trading,
it is said to be following calendar time model. The present study is an attempt to
1

Electronic copy available at: http://ssrn.com/abstract=2229290

investigate the applicability of trading time model or in other words, day of the week
effect, in commodity futures market in India and for the purpose, precious metals
segment has been chosen for the study and metal selected is gold.
Gold is traded 24 h a day and has been an important precious metal for many millennia
and almost all the gold ever mined is still in existence. Demand for gold arises from
consumers in the form of jewellery, dental fillings and other uses; from industry as one of
the most ductile metals and as an excellent conductor of heat and electricity; and from
central banks and investors. Gold also plays an important role as a store of value
especially in times of political and economic uncertainty. (Aggarwal, R. and Lucey, B.M.
2007: 218)
Multi Commodity Exchange of India Limited started operations in November 2003 and
holds a market share of over 85% of the Indian Commodity futures market.1 It offers
trading in different segments like bullion, metals, energy, oil and oilseeds, plantations,
pulses, spices etc. Gold is the highest traded metal on Multi Commodity Exchange of
India Limited (MCX). Following table shows the value of gold traded on MCX from
2003 to 2011.
Table I
Volume of Gold traded on MCX (` in lakhs)
Year
2003
2004
2005
2006
2007
2008
2009
2010
2011

Gold
13364
4012886
17920890
91844784
74786092
184054386
207797608
248477853
384270982

Source: http://www.mcxindia.com/SitePages/HistoricalDataForVolume.aspx, accessed on 05 January

2012. Amount rounded off to nearest lakh rupees.

http://www.mcxindia.com/aboutus/aboutus.htm#top.accessedon21062012.

Objective of the Study: There are many studies that investigated day of the week effect
on stock market returns of the developed countries and some attempts have been made to
investigate day of the week effect on the returns of stock markets of emerging countries.
But commodity markets got less attention in this regard. There are very few studies
which investigated the day of the week effect on the commodity markets of emerging
countries. This stimulated us to study the day of the week effect on the return of highly
traded commodity futures contract in India i.e. gold contract.
Review of Previous Studies: Review of the studies already done in the field is necessary
to understand the methodology to be applied for the purpose. Review of some studies
consulted by us is:
French, K.R. 1980, analysed closing prices of S&P portfolio from 1953 through 1977, for
the purpose of testing- whether the return generating process follows trading time
hypothesis or calendar time hypothesis. Period of study was divided into five sub periods
and the results of the study show that return for Monday was negative and lower than the
average return for any other day for each of the five sub periods. Neither the trading time
nor the calendar time model was found to be an accurate description of return generating
process.
Ball, C.A., Torous, W.N. and Tschoegl, A.E. 1982, analysed morning and afternoon
fixing prices of gold in London from January 2, 1975 to June 30, 1979 and generated four
series of return- morning to morning change, afternoon to afternoon change, overnight
change and the within day change. Results of the study show that overnight changes are
less variable than within the day changes, daily variances are not equal, weekend

variances are not very different from daily variances. With regard to return variances,
trading time hypothesis was found to be better fit on data than a calendar time hypothesis.
Ma, C.K. 1986, analysed daily gold afternoon fixings from January 1972 to June 1985 by
dividing the period of study into two parts before October 1981 and after October 1981,
on the basis of implementation of same day settlement procedure. The study concluded
that high Wednesday effect before 1981 was due to settlement effect; and the return
generating process in the gold market is more consistent with the calendar time
hypothesis. Thus a higher than usual return on the day following a non trading period
may be expected in a bull market and a lower return in a bear market period.
Dyl, E.A. and Maberly, E.D. 1986, analysed daily opening and closing prices of S&P 500
from June 1, 1982 to May 17, 1985 and studied separately trading and non trading period
returns. Study did not observe the presence of day of the week effect for close to close
return but observed the same for the non trading period.
Gay, G.D. and Kim, T.H. 1987, analysed data on Commodity Research Bureau Index
from September 1956 to March 1985 and divided the period of study into two sub
periods, on the basis of enactment of Economic Recovery Act, 1981 which ends any
motivation for tax loss selling in the market. The study observed significant returns for
Wednesdays and Fridays, highest Friday return than all other days return with lowest
variance and for Mondays, lowest and negative return with highest variance before 1981.
The pattern disappeared during the post 1981 time period.
Agrawal, A. 1994, studied indices data for 18 countries. Time period for 12 countries out
of these 18 countries spans from 1971 to 1987 and for the remaining 6 countries time
period varied. Results for USA were reported from other studies for comparison. The

study observed that Wednesday and Friday returns were large and significantly positive
in most of the countries. For Monday, seven countries exhibit significant negative return.
Strong negative Tuesday effect was found in several countries examined.
Kamath, R.R., Chakornpipat, R. and Chatrath, A. 1998, analysed closing prices index of
stock exchange of Thailand and its ten industry classified indices from January 1980
through December 1994 and observed negative Monday and positive Friday returns.
Berument, H. and Kiyamaz, H. 2001, analysed closing prices of S&P 500 from January
1973 to October 1997. Highest return was observed on Wednesdays and lowest return
was observed on Mondays; highest volatility was observed on Fridays and lowest on
Wednesdays.
Sarma, S.N. 2004, analysed daily return generated by SENSEX, NATEX AND BSE 200,
from January 1, 1996 to August 10, 2002. Results of the study show that there is
seasonality in Indian stock markets returns pattern and a trading strategy of buying on
Mondays and selling on Fridays may be designed by the investors of SENSEX; and for
other two indices a passive buy and hold strategy was found to be more effective.
Kaur, H. 2004, studied day of the week effect in return as well as in variance by including
dummies in both the equations of GARCH model for a period from 1993 to 2003. The
study was divided into two sub periods, one before the introduction of the rolling
settlement and the other after the introduction of rolling settlement by Bombay Stock
Exchange and National Stock Exchange. The results of the study indicate the presence of
the day of the week effect in returns as well as in volatility with Mondays, Tuesdays and
Fridays having lower return and Wednesdays having higher return; and lower volatility
was observed for Tuesday.

Aly, H., Mehdian, S. and Perry, M.J. 2004, analysed closing prices of Egyptian stock
market index from April 26, 1998 to June 6, 2001. The study observed Monday positive
and significant return but not significantly different from other days of the week.
Variance for Monday was found to be significantly higher than the variance for rest of
the week.
Lucey, B.M. and Tully, E. 2006, analysed cash and futures series of gold and silver,
traded on COMEX from January 1982 to November 2002. For unconditional mean,
variance; seasonality in the mean, if present, was found to be weak and not statistically
significant; and seasonality was stronger for variance than for the mean. For conditional
mean and variance in gold and silver cash, negative Monday effect was observed but the
same was not observed for gold and silver futures market.
Singhal, A. and Bahure, V. 2009, analysed daily closing values of BSE SENSEX, BSE
200 and Nifty form April 2003 to April 2008 and observed lower Monday and higher
Friday return than the return of rest of the week. The same was existent even after some
adjustments related to investors expectations were made by the researchers.
Rahman, M.L. 2009, analysed daily closing prices of 3 indices of Dhaka Stock Exchange
from 04-09-2005 to 08-10-2008 and observed Thursday (last trading day of the week at
Dhaka Stock Exchange during the period of study) mean return for all the three indices
was positive and significant; whereas for Sundays and Mondays, mean return was found
to be negative and significant.
Puja, P. 2010, tested the presence of day of the week effect in aggregate indices, BSE 100
Index, BSE 500 Index, BSE-Sensitive Index, S&P CNX 500 and Nifty, for a period from
January 1, 1990 to November 30, 2004. The results of the study show that average return

for the Mondays, Tuesdays and Thursdays- returns for Nifty, S&P CNX 500 are negative
and significant; and for Fridays- Nifty, S&P CNX 500 and BSE 500 have significant
negative return.
Suman and Chahal, S.S. 2011 examined the day of the week effect on BSE Sensex from
January 1, 1999 to May 31, 2010. No day of the week effect is observed on returns of
BSE Sensex and same is found in volatility, the highest volatility being occurring on
Mondays.
On the basis of above literature review it can be said that no set theory can be developed
for the presence of day of the week effect in stock as well in commodity markets and a lot
of research is needed in this area. Present study is an attempt in this regard.
Data for the Study: For the purpose of present study, daily closing prices of near month
futures contract for gold, traded on Multi Commodity Exchange of India Limited, have
been collected from the website of the exchange (www.mcxindia.com). Near month
futures contract has been considered on the assumption that it is the most traded futures
contract for any underlying asset. Following- French. 1980, Ball, et al. 1982, Dyl, et al.
1994, Kamath, et al. 1998, we exclude the return for the days following holidays during
the week. The data has been analysed with the help of MS Excel 2007, SPSS 16 and
Eviews-6.
Period of Study: Period of study spans from 1 April 2006 to 31 March 2012.
Analysis of Data: Data has been analysed by applying following statistical and
econometric techniques:
Return: Series of daily closing prices has been converted in to continuous daily
percentage return series by applying the following formula:

ln P

ln P

100

WhereR is the return for day t, lnis the natural log, Pt and Pt-1 are the closing prices for
day t and its previous trading day. Daily return has further been decomposed into trading
period return and non trading period return with the help of following formulae:
Trading Period Return = lnclose

ln

100

Where ln is the natural log, close is the closing price for day t and

is the open

price for day t.

Non trading Period Return = ln
Where ln is the natural log,

ln

100

is the open price for day t and

is the close

price for day t-1. Thus for non trading period return, the impact of period from previous
close to present open is considered.
Basic Statistics: Before applying any statistical or econometric technique on the data,
basic statistics of the data should be studied for the purpose of knowing statistical
properties of the data. In the present study basic statistics for data have been studied and
the results are shown in Table II, Table III and Table IV.
Stationarity of Data: Basic requirement for analyzing any time series is that the data
must be stationary. Because all the three return series in the present study are time series,
so these have been tested for stationarity on the basis of graphical presentation as well as
with the help of the Augmented Dickey-Fuller (ADF) test.
The Augmented Dickey-Fuller (ADF) test consists of estimating the following regression
(Gujarati, D.N. and Sangeetha. 2007: 817).
Y

If on the basis of this test, a time series is found to be non stationary, it is transformed, to
make it stationary before applying econometric techniques on it.
Day of the Week Effect: Day of the week effect on gold return has been studied by
introducing dummies for different trading days of the week in the regression equation. As
trading on Multi Commodity Exchange of India Limited is carried on six days a week,
from Mondays through Saturdays, dummies for all the six days were introduced. First of
all ordinary least square regression was applied with the help of following equation:

Where 1...6 are coefficients to be estimated and M, Tu, W, Th, F and S are dummies for
the trading days of the week. M=1 if the day is a Monday and 0 otherwise. Same process
is followed for other trading days. The hypothesis to be tested is:

Ordinary least square equation assumes the existence of constant variance, but if the
variance is time varying results of the equation may be misleading. So the results of the
ordinary least square equation were tested for ARCH effect left in the residuals. If the
same was found to be there, GARCH (1.1) model was applied on the data to account for
ARCH effect. In GARCH (1,1) model, the return equation described above was followed
but variance equation was:

Where

is previous period error term, also known as ARCH term and h

is

previous period variance, known as GARCH term.

Extreme Value Analysis: To investigate the effect of the day of the week on extreme
returns, 10% minimum values and 10% maximum values of return were considered and
days for the same were observed. Non-parametric Chi-square test was applied to test
9

whether there is any significant difference in days of the week for the same. This
procedure was applied only for daily return series.
Empirical Results: Table II, Table III and Table IV show the Descriptive Statistics for
daily return series, trading period return series and non-trading period return series. 5%
trimmed mean has been calculated with the help of SPSS 16. 5% trimmed mean is the
simple average for the 95% values- after deleting extreme 2.5% both from lower area and
from upper area. Thus for 5% trimmed mean outliers are excluded from both the sides.
Table II
Descriptive Statistics for Daily Return

Median
Std. Dev.
Skewness
Kurtosis

Overall
Return
0.067429
0.084588
0.081086
1.109455
-0.321837
8.787535

Monday
Return
0.015691
0.067804
0.026450
1.124558
-0.907212
6.122517

Tuesday
return
0.075405
0.092849
0.067692
1.170264
-0.471834
7.245348

Wednesday
Return
0.073069
0.098615
0.114561
1.254630
0.015007
10.76070

Thursday
Return
-0.001750
-0.007256
0.050355
1.190188
0.172630
5.183417

Friday
Return
0.117426
0.128034
0.113148
1.209932
-0.455469
8.237026

Saturday
Return
0.126942
0.103208
0.087474
0.511579
0.233846
21.57338

Jarque-Bera
Probability

2547.479
0.000000

160.3109
0.000000

240.3589
0.000000

770.4339
0.000000

62.30303
0.000000

352.0258
0.000000

4185.418
0.000000

Observations

1803

295

305

307

306

299

291

Statistic
Mean
Trimmed Mean

Table III
Descriptive Statistics for Trading Period Return

Median
Std. Dev.
Skewness
Kurtosis

Overall
Return
0.050414
0.066473
0.081429
1.048100
-0.300378
9.879979

Monday
Trading
Period
Return
-0.020089
0.015394
0.011242
1.040023
-0.584469
6.553224

Tuesday
Trading
Period
Return
0.069356
0.097867
0.102084
1.141528
-0.640804
7.449919

Wednesday
Trading
Period
Return
0.051941
0.070358
0.106070
1.168860
0.250309
13.39583

Thursday
Trading
Period
Return
-0.014466
-0.011160
0.081803
1.134154
-0.087367
5.326086

Friday
Trading
Period
Return
0.125498
0.136461
0.168955
1.154031
-0.545324
9.350240

Saturday
Trading
Period
Return
0.091359
0.068886
0.063495
0.431462
2.062100
16.23641

Jarque-Bera
Probability

3585.075
0.000000

171.9827
0.000000

272.5212
0.000000

1385.643
0.000000

69.37542
0.000000

517.2085
0.000000

2338.575
0.000000

Observations

1804

295

305

307

306

299

292

Statistic
Mean
Trimmed Mean

Table IV
Descriptive Statistics for Non-Trading Period
Statistic

Overall
Return

Monday Non Tuesday Non Wednesday Thursday Friday Non Saturday

Trading
Trading Non Trading Non Trading Trading Non Trading
Period
Period
Period
Period
Period
Period

10

Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis

0.016795
0.017546
0.031182
2.185756
-3.645309
0.331065
-1.080972
26.60410

Return
0.035780
0.031310
0.053478
1.724572
-2.964293
0.386029
-1.485405
23.33778

Return
0.006049
0.007735
0.022449
1.640995
-1.523890
0.287064
-0.124122
12.30846

Return
0.021128
0.015931
0.032614
2.185756
-2.157625
0.387774
-0.137791
18.36202

Return
0.012717
0.007147
0.021927
1.088430
-1.036991
0.252017
0.408767
7.165566

Return
-0.008071
0.003008
0.008975
2.109134
-1.893307
0.289693
-0.327630
19.32522

Return
0.034081
0.038739
0.038665
1.906272
-3.645309
0.361159
-3.226559
46.17567

Jarque-Bera
Probability

42207.31
0.000000

5192.628
0.000000

1101.927
0.000000

3019.698
0.000000

229.7588
0.000000

3325.653
0.000000

23107.60
0.000000

Observations

1803

295

305

307

306

299

291

Mean
Trimmed Mean

The main observations from the results depicted in above tables are

Value of trimmed mean has improved than mean in almost all the cases except for
Thursday daily return, Saturday daily return, Saturday trading period return,
Monday non trading period, Wednesday non trading period and Thursday non
trading period. Thus all these exceptional periods have more negative extreme
values than other periods have.

As far as skewness is related some periods have positive skewness and some have
negative skewness. Main observation about skewness is that skewness for
Saturday daily return has a positive value of 0.233846 whereas its trading period
return has a positive value of 2.062100 and non trading period return has a
negative value of 3.226559, it is an exceptional observation for which no reasons
could be found by the researchers of the present study.

All the distributions are non-normal as the null hypothesis of normal distribution
is rejected by Jarque-Bera test ( value for all the cases is 0)

Stationarity of Data: The results of OLS regressions will be spurious if the dependent
variable is non-stationary (Pandey, I.M. 2002: 4). In the present study, dependent variable
is daily gold return, gold return for trading period and gold return for non trading period.

11

So we checked the stationarity of all the three return series graphically and the results
have been presented with the help of Graph I, Graph II and Graph III.
Graph I
Daily Return

Graph II
Trading Period Return

Graph III
Non Trading Period Return

12

It is clear from the above graphs that trading period return is more clustered than non
trading period return and non trading period return has more spikes than trading period
return. But as far as stationarity is concerned, all the return series seem to be stationary.
Stationarity is further been checked by the Augmented Dickey-Fuller (ADF) test.
Table V
Result of the Augmented Dickey-Fuller Test
Null Hypothesis: Return Series have a unit root
Exogenous: Constant
Lag Length: 0 (Automatic based on SIC, MAXLAG=24)
Augmented Dickey-Fuller test statistic
Daily Return
Trading Period Return
Non Trading Period Return

t-Statistic
-43.80035
-42.70118
-36.71938

Prob.*
0.0001
0.0000
0.0000

*MacKinnon (1996) one-sided -values.

Results of graphical presentation are confirmed by the results of the Augmented DickeyFuller test. Null hypothesis of having unit root by the series have been rejected in case of
all the three series and it can be said that all the three return series are stationarity and the
required econometric models/techniques can be applied on the series.
Day of the Week Effect on Return Series:

13

Results of the ordinary least square equation with dummies for 6 days of the week, as
discussed in the methodology, have been applied on daily return, trading period return
and non trading period return and the results are presented in Table VI, Table VII and
Table VIII.
Table VI
Results of Ordinary Least Square Equation with Dummy Variables on Daily Return
Dependent Variable: DAILY RETURN
Method: Least Squares
Sample (adjusted): 2 1804
Included observations: 1803 after adjustments
Variable
Coefficient
MONDAY
0.015691
TUESDAY
0.075405
WEDNESDAY
0.073069
THURSDAY
-0.001750
FRIDAY
0.117426
SATURDAY
0.126942
Durbin-Watson stat
2.059987
Obs*R-squared
46.52858

Std. Error
0.064626
0.063557
0.063350
0.063453
0.064192
0.065068

t-Statistic
0.242796
1.186412
1.153424
-0.027573
1.829304
1.950901

Prob.
0.8082
0.2356
0.2489
0.9780
0.0675
0.0512
0.0000

Table VII
Results of Ordinary Least Square Equation with Dummy Variables on Trading Period Return
Dependent Variable: TRADING PERIOD RETURN
Method: Least Squares
Sample: 1 1804
Included observations: 1804
Variable
Coefficient
Std. Error
t-Statistic
Prob.
MONDAY
-0.020089
0.061030
-0.329167
0.7421
TUESDAY
0.069356
0.060021
1.155527
0.2480
WEDNESDAY
0.051941
0.059825
0.868218
0.3854
THURSDAY
-0.014466
0.059923
-0.241416
0.8093
FRIDAY
0.125498
0.060620
2.070230
0.0386
SATURDAY
0.091359
0.061342
1.489331
0.1366
Durbin-Watson stat
2.010375
Obs*R-squared
33.54269
0.0000

Table VIII
Results of Ordinary Least Square Equation with Dummy Variables on Non Trading Period Return
Dependent Variable: Non Trading Period Return
Method: Least Squares
Date: 12/20/12 Time: 20:51
Sample (adjusted): 3 1804
Included observations: 1802 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
Prob.

14

MONDAY
TUESDAY
WEDNESDAY
THURSDAY
FRIDAY
SATURDAY
Non Trading Period Return (-1)

Durbin-Watson stat
Obs*R-squared

0.031003
0.000653
0.019022
0.010374
-0.009807
0.034996
0.144435
2.009072
9.706437

0.019128
0.018790
0.018712
0.018743
0.018960
0.019217
0.023345

1.620819
0.034756
1.016584
0.553493
-0.517268
1.821112
6.187105

0.1052
0.9723
0.3095
0.5800
0.6050
0.0688
0.0000
0.0018

It is clear from the Tables VI, VII and VII that for daily return, Friday and Saturday are
significant days, respectively at 6.75% and 5.12% level of significance; for trading
period return significant day is only Friday; and for non-trading period return, Saturday is
significant at 6.88% level of significance.
Durbin Watson stat is the test for the presence of serial correlation in residuals. This stat
should be near to two, so that there is no serial correlation in residuals. We found this stat
near to two in case of daily return and for the return for trading period; but it was
1.710703 in case of non trading period return, so we tried to include volume and open
interest as exogenous variable, but the value of Durbin Watson stat was not improved.
Then we tried the one period lagged value of non trading period return and get the Durbin
Watson stat near to two. Thus the problem of serial correlation was solved by adding one
period lagged value of non trading period return as exogenous variable. In all the three
cases value of Obs*R-squared, which is the test for heteroskesdasticity in residuals, is
significant, thus indicating the presence of heteroskesdasticity and also indicating the
need for applying the model of ARCH family. For this purpose we applied vastly applied
GARCH (1,1) model.
Table IX
Results of GARCH (1,1) Model with Dummy Variables in Daily Return Equation
Dependent Variable: DAILY RETURN
Method: ML - ARCH (Marquardt) - Normal distribution

15

Sample (adjusted): 2 1804

Included observations: 1803 after adjustments
Convergence achieved after 87 iterations
Presample variance: backcast (parameter = 0.7)
GARCH = C(7) + C(8)*RESID(-1)^2 + C(9)*GARCH(-1)
Variable
Coefficient
Std. Error
MONDAY
0.010191
0.057318
TUESDAY
0.101268
0.044831
WEDNESDAY
0.055899
0.035984
THURSDAY
-0.005852
0.045093
FRIDAY
0.079437
0.046444
SATURDAY
0.077948
0.119096
Variance Equation
C
0.011293
0.001965
RESID(-1)^2
0.053784
0.006091
GARCH(-1)
0.936935
0.006047

z-Statistic
0.177802
2.258879
1.553437
-0.129780
1.710368
0.654495

Prob.
0.8589
0.0239
0.1203
0.8967
0.0872
0.5128

5.745980
8.829623
154.9423

0.0000
0.0000
0.0000

Table X
Results of GARCH (1,1) Model with Dummy Variables in Trading Period Return Equation
Dependent Variable: TRADING PERIOD RETURN
Method: ML - ARCH (Marquardt) - Normal distribution
Sample: 1 1804
Included observations: 1804
Convergence achieved after 76 iterations
Presample variance: backcast (parameter = 0.7)
GARCH = C(7) + C(8)*RESID(-1)^2 + C(9)*GARCH(-1)
Variable
Coefficient
Std. Error
MONDAY
-0.022111
0.051695
TUESDAY
0.108090
0.039164
WEDNESDAY
0.039982
0.034118
THURSDAY
-0.011069
0.040357
FRIDAY
0.099143
0.041501
SATURDAY
0.062691
0.104806
Variance Equation
C
0.009615
0.001579
RESID(-1)^2
0.062532
0.006109
GARCH(-1)
0.930495
0.005651

z-Statistic
-0.427720
2.759934
1.171859
-0.274282
2.388910
0.598164

Prob.
0.6689
0.0058
0.2413
0.7839
0.0169
0.5497

6.089796
10.23690
164.6511

0.0000
0.0000
0.0000

Table XI
Results of GARCH (1,1) Model with Dummy Variables in Non Trading Period Return Equation
Dependent Variable: Non Trading Period Return
Method: ML - ARCH (Marquardt) - Normal distribution
Sample (adjusted): 3 1804
Included observations: 1802 after adjustments
Convergence achieved after 35 iterations
Presample variance: backcast (parameter = 0.7)
GARCH = C(8) + C(9)*RESID(-1)^2 + C(10)*GARCH(-1)
Variable
Coefficient
Std. Error
z-Statistic
Prob.

16

MONDAY
TUESDAY
WEDNESDAY
THURSDAY
FRIDAY
SATURDAY
Non Trading Period Return(-1)

C
RESID(-1)^2
GARCH(-1)

0.013703
0.007657
-0.000837
0.008241
-0.001659
0.007046
0.011841
0.009431
0.012321
0.005683
0.029269
0.005301
-0.091117
0.018611
Variance Equation
0.010691
0.000770
0.942720
0.032904
0.386123
0.015935

1.789679
-0.101580
-0.235438
1.255457
2.168150
5.521213
-4.895889

0.0735
0.9191
0.8139
0.2093
0.0301
0.0000
0.0000

13.87952
28.65054
24.23079

0.0000
0.0000
0.0000

After accounting for heteroskesdasticity, observations related to Tables IX, X and XI are:

For all the three return series, GARCH as well as ARCH term are significant
indicating that volatility in case of gold return is time varying and persistent.

Daily return is negative on Thursday but insignificant and for other days it is
positive; significant return is found only for Tuesday and Friday at 2.39% and
8.72% respectively.

Trading period return is negative for Monday and Thursday, but not significant
for both the days. Significant positive return occurs on Tuesday and Friday.

Non trading period return is negative on Tuesday and Wednesday, though not
significant. Significant positive return occurs on Monday, Friday and Saturday at
7.35%, 3.01% and 0% level of significance. One period lagged return for non
trading period has also significant impact on the return of non trading period.

Extreme Value Analysis: For analysing the impact of day of the week on extreme
values, day of the week for 180 extreme positive daily returns as well as 180 extreme
negative returns were observed and non-parametric chi- square test was applied. Results
for this exercise are presented in table XII.
Table XII
Days for Extreme Values
17

Day (Frequency)
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
2

Positive
28
42
29
37
36
8
23.933

Negative
29
37
35
45
30
4
32.533

0.0000

0.0000

For stock market, negative return is the indication of declaration of bad news and positive
return is the indication of declaration of good news. Though same may not hold in
commodity return, but to some extant impact of the day of the week, on extreme positive
and extreme negative can be observed. In the present study it has been done with the help
of applying non-parametric chi square test. On observing the results given in Table XII, it
is clear on the first instance that extreme positive and extreme negative returns are
observed on Saturdays in minimum cases. Result of chi-square also confirm the day of
the week effect on extreme returns.
Conclusions and Discussion:
Present study is an attempt to investigate the day of the week effect on gold return of near
month futures contract, traded on biggest Indian commodity exchange, Multi Commodity
Exchange of India Limited (MCX). For the purpose of study, opening and closing prices
have been analysed with the help of dummy variables. Heteroskesdasticity was found to
be there in residuals of all the series after applying ordinary least square equation, and the
same was accounted for by applying GARCH (1,1) model. Results of the study indicate
that to some extent there is an impact of day of the week on daily return. When the daily
return was decomposed to trading period and non trading period return, more impact of
day of the week was found during non trading period than during trading period. Same
observation was made by Dyl, et al. 1986 for S&P 500. Here it is important to mention
18

that gold is traded on MCX from 10.00 a.m. to 11.30 p.m. from Mondays through
Fridays; and from 10.00 a.m. to 2.00 p.m. on Saturdays; and as discussed in methodology
part that for any day, impact of previous close to present open is considered in the study
as non trading period return. During the non trading period of MCX, markets of US are
open, so one of the probable reasons for the impact during non trading period may be the
spill over from US commodity market; and other reasons may be impact of volume and
open interest rather than the impact of a particular day of the week. The empirical
findings of some future research may through some light on the impact of these factors.
For designing a strategy of buying and selling, transaction cost is also to be considered by
the market players, but they can use the results of the present study for timing their
tradings.
Reference:
Agrawal, A. 1994. Anomalies or illusions? Evidence from Stock markets in eighteen countries. Journal of
International Money and Finance, 13: 083-106.
Aggarwal, R. and Lucey, B.M. 2007. Psychological barriers in gold prices? Review of Financial
Economics, 16: 217-230.
Aly, H., Mehdian, S. and Perry, M.J. 2004. An Analysis of Day-of-the-Week Effects in the Egyptian Stock
Market. International Journal of Business, 9(3): 301-308.
Ball, C.A., Torous, W.N. and Tschoegl, A.E. 1982. Gold and the Weekend Effect. The Journal of
Futures Markets,2(2): 175-182.
Berument, H. and Kiymaz, H. 2001. The Day of the Week Effect on Stock Market Volatility. Journal of
Economics and Finance, 25(2): 181-193.
Dyl, E.A. and Maberly, E.D. 1986. The Daily Distribution of Changes in the Price of Stock Index Futures.
The Journal of Futures Markets, 6(4): 513-521.
French, K.R. 1980. Stock Returns and the Weekend Effect. Journal of Financial Economics, 8:55-69.

19

Gay, G.D. and Kim, T.H. 1987. An Investigation into Seasonality in the Futures Market. The Journal of
Futures Markets,7(2): 169-181.
Gujarati, D.N. and Sangeetha. 2007. Basic Econometrics. New Delhi: Tata McGraw-Hill Publishing
Company Limited.
Kamath, R.R., Chakornpipat, R. and Chatrath, A. 1998. Return Distributions and the Day-of-the-Week
Effects in the Stock Exchange of Thailand. Journal of Economics and Finance, 22(2-3): 97-106.
Kaur, H. 2004. Time Varying Volatility in the Indian Stock Market. Vikalpa, 29(4): 25-42.
Lucey, B.M. and Tully, E. 2006. Seasonality, risk and return in daily COMEX gold and silver data 19822002. Applied Financial Economics, 16: 319-333.
Ma, C.K. 1986. A Further Investigation of the Day-of-the-Week Effect in the Gold Market. The Journal of
Futures Markets, 6(3): 409-419.
Pandey, I.M. 2002. Retrieved from http://www.iimahd.ernet.in/assets/snippets/workingpaperpdf/2002-0908IMPandey.pdf on 05-12-2012.
Puja, P. 2010. Days-of-the-Week-Effect and Stock Return Volatility: Theory and Empirical Evidence.
Advances in Management, 3(4):14-21.
Rahman, M.L. 2009. Stock Market Anomaly: Day of the Week Effect in Dhaka Stock Exchange.
International Journal of Business and Management, 4(5):193-206.
Sarma, S.N. 2004. Stock Market Seasonality in an Emerging Market. Vikalpa, 29(3): 35-41.
Singhal, A. and Bahure, V. 2009.Weekend Effect of Stock Returns in the Indian Market. Great Lakes
Herald, 3(1): 12-22.
Suman, and Chahal, S.S. 2011. Day of the Week Effect on Stock Market Return and Volatility of India.
HSB Research Review, 2(2): 54-59.

20