The present study examines empirically the day-of-the-week effect anomaly in the Indian equity market for the period 1999 to 2003 using both high frequency and end-of-day data for the benchmark Indian equity market index S&P CNX NIFTY. Using robust regression with biweights and dummy variables, the study finds that before the introduction of rolling settlement in January 2002, Monday and Friday were significant days. However, after the introduction of the rolling settlement, Friday has become significant. This also indicates that Fridays, being the last day of the week, have become significant after rolling settlement. Mondays were found to have higher standard deviations followed by Fridays. The existence of market inefficiency is clear. The market inefficiency still exists and market is yet to price the risk appropriately.

In recent years the testing for market anomalies in stock returns has become an active field of research in empirical finance, and has been receiving attention from not only academic journals but also in the financial press. Among the more well-known anomalies are the size effect, the January effect and the day-of-the-week effect. The day-of-the-week effect is a phenomenon that constitutes a form of anomaly of the efficient capital markets theory. According to this phenomenon, the average daily return of the market is not the same for all days of the week, as we would expect on the basis of the efficient market theory.

Earlier studies have found the existence of the day-of-the-week effect not only in the USA and other developed markets but also in the emerging markets like Malaysia, Hong Kong, Turkey. For most of the western economies empirical results have shown that on Mondays the market has statistically significant negative returns, while on Fridays statistically significant positive returns. In other markets such as that of Japan, Australia, Singapore, Turkey and France, the highest negative returns appear on Tuesdays.

The most satisfactory explanation that has been given for the negative returns on Mondays is that usually the most unfavorable news appears during the weekends. These unfavorable news influence the majority of the investors negatively, causing them to sell on the following Monday. The most satisfactory explanation that has been given for Tuesday’s negative returns are that the bad news of the weekend affecting the US market, influence negatively some markets lagged by one day.