Day-of-The-Week Effects and Volatility Clustering in Banking Stocks: GARCH-Based Evidence from India’s Emerging Market
Year: 2025
Type: article
Abstract: Understanding anomalies in stock markets, including day-of-the-week effects, is crucial for developing a comprehensive view of market behaviour and efficiency. It highlights the complex interplay between rational economic principles and behavioural factors in shaping financial markets. In this context, the present study evaluates how weekday patterns affect the daily market dynamics of BSE Bankex (from June 23, 2003, to July 31, 2024) and Nifty Bank (from June 9, 2005, to July 31, 2024), employing Generalized Autoregressive Conditional Heteroskedasticity (GARCH), Fractionally Integrated GARCH (FIGARCH), Threshold GARCH (TGARCH), and Exponential GARCH (EGARCH) models. While overall returns do not exhibit significant weekday effects, the findings show a positive return on the baseline day (Monday), reduced volatility on Tuesdays, and elevated volatility levels on Fridays. The analysis also confirms robust volatility clustering driven by both past shocks and past volatility, along with leverage and long memory effects. The study concludes that Indian banking stock volatility shows strong day-of-the-week effects, most notably a “calm Tuesday and volatile Friday” pattern, alongside robust volatility clustering, persistence, leverage asymmetry, and long memory. Collectively, these results point towards the presence of persistent market reactions and potential inefficiencies in banking stock pricing, providing insights for investors seeking to capitalize on such inefficiencies and evidence for policymakers aiming to enhance financial market stability.
DOI: 10.14419/y9tbcv57
Author: Nitashree Barman
Institution: Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4416827415
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