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Weekday Effects and GARCH Evidence in Biotechnology Stocks

Article arXiv papers · Author: Swarn Chatterjee
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Summary

This study tests for a day-of-the-week pattern in daily returns of the NASDAQ Biotechnology Index over a 16-year period, from January 2002 through December 2015. It reports that returns were lowest on Mondays and significantly higher on Wednesdays, Thursdays, and Fridays compared with Mondays. The analysis also applies asymmetric GARCH processes to examine market risk-adjusted returns.

The reported results associate momentum and the small-firm effect positively with those risk-adjusted returns. The authors suggest that active portfolio managers account for weekday patterns and these factors when making decisions about biotechnology stocks. The findings are specific to the index and historical period described. The abstract does not give model specifications, effect sizes, robustness checks, or transaction-cost analysis, so it does not establish whether the patterns remain useful in other periods or after trading costs.

Key ideas

  • The study examines daily NASDAQ Biotechnology Index returns from 2002 to 2015.
  • It reports the lowest returns on Mondays and higher returns on Wednesday through Friday relative to Monday.
  • Asymmetric GARCH analysis links momentum and the small-firm effect positively with risk-adjusted returns.
  • The results are limited to the studied index and period, and the summary provides no transaction-cost analysis.

Tags

EquitiesStatisticsMomentumVolatilityUS markets
Full text
# Day of the Week Effect in biotechnology stocks: An Application of the GARCH processes


# Day of the Week Effect in biotechnology stocks: An Application of the GARCH processes









This study examines the presence of the day-of-the-week effect on daily returns of biotechnology stocks over a 16-year period from January 2002 to December 2015. Using daily returns from the NASDAQ Biotechnology Index (NBI), we find that the stock returns were the lowest on Mondays, and compared to the Mondays the stock returns were significantly higher on Wednesdays, Thursdays, and Fridays. Moreover, the results from using the asymmetric GARCH processes reveal that momentum and small-firm effect were positively associated with the market risk-adjusted returns of the biotechnology stocks during this period. The findings of our study suggest that active portfolio managers need to consider the day of the week, momentum, and small-firm effect when making trading decisions for biotechnology stocks.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.