In informationally efficient markets, investors and analysts are not likely to predict stock price movements consistently. Still, market participants make concerted efforts to earn abnormal returns discerning some anomalous pattern in the stock price movements. This study empirically scrutinizes whether this pattern yields abnormal return consistently for any specific day of the week. Four market series, namely, the BSE Sensex, BSE 100, S&P CNX Nifty, and S&P CNX 500 were considered on a daily basis for a 10-year period. The entire series is divided into two sub-periods, viz., (1) pre-rolling settlement period, April 1997-December 2001; and (2) post-rolling settlement period, January 2002-March 2007. Contrary to the earlier findings, this study documents the lowest Friday returns on the BSE in the pre-rolling settlement period. The findings recorded for post-rolling settlement period were in harmony for those obtained elsewhere in the sense that Friday returns were the highest and those on Monday were the lowest to document credible evidence for the day-of-the-week effect. It may be inferred that the arbitrage opportunities existed have not only subsided consequent to the introduction of the compulsory rolling settlement but also the pattern of market movements have become even more akin to that experienced in the developed capital markets. On the whole, the study documents the presence of the day-of-the-week effect in the Indian stock markets.

A number of studies have been conducted to document the extensive evidence of the randomness in stock price movements across the globe. In recent times, researchers and academicians have found strong empirical evidences to support Efficient Market Hypothesis (EMH) which states that no investor, reacting to new information disclosure, can earn abnormal returns consistently. It is based on the premise that any release of new information is available to all the investors equitably and the same is instantaneously incorporated into stock prices.

The market mechanism for new information adjustment is presumed to be so swift to maintain independent and random movement in stock prices. Studies have quite extensively analyzed and documented evidence in support of this randomness in stock prices and market series in India.1 The kind of randomness identified in these and other such studies denies any encumbrance in the flow of information and does not assist investors to find any predictable pattern in the stock price movements.

However, in spite of the strong evidences in support of the highly efficient market mechanism, there are instances when the stock price movements enable the investors to earn abnormal returns discerning some pattern in the stock price movements. This kind of anomalous behavior of stock prices is also studied and documented by a series of studies which seems to be incongruous to the hypothesis of EMH. These studies have challenged the efficient market notion and identified certain parameters as P/E ratios, dividend yield, size, seasonality, etc., to empower investors with some predictive power to locate patterns in the stock price movements and thus to harvest extra returns.

IUP Journal of Applied Finance, Indian Stock Markets , Bombay stock exchange, BSE, Efficient Market Hypothesis , EMH, Trading settlement system, Colombo Stock Exchange, CSE, Indian stock markets, Center for Monitoring Indian Economy , CMIE, Software Packages for Social Sciences , SPSS, National stock exchagne, NSE.