TAILIEUCHUNG - Are there Monday e§ects in Stock Returns: A Stochastic Dominance Approach

The presence of the financial safety net can affect the behaviour of bank stock prices. Explicit provisions such as deposit insurance and the access to liquidity facilities by the central bank, as well as the perceived availability of state support in times of distress, can affect market discipline by numbing creditors’ sensitivity to risk-taking by banks. Besides lowering the cost of debt financing, this also means that shareholders of banks that are more likely to receive support may require a lower return on their investment, in line with the reduced risk of the bank failing. In order to assess. | Are there Monday effects in Stock Returns A Stochastic Dominance Approach Young-Hyun Choy Oliver Lintonz Yoon-Jae Whang x Korea University London School of Economics Seoul National University September 29 2006 Abstract We provide a test of the Monday effect in daily stock index returns. Unlike previous studies we define the Monday effect based on the stochastic dominance criterion. This is a stronger criterion than those based on comparing means used in previous work and has a well defined economic meaning. We apply our test to a number of stock indexes including large caps and small caps as well as UK and Japanese indexes. We find strong evidence of a Monday effect in many cases under this stronger criterion. The effect has reversed or weakened in the Dow Jones and S P 500 indexes post 1987 but is still strong in more broadly based indexes like the NASDAQ the Russell 2000 and the CRSP. KEywORDS Efficient Markets stock market anomalies subsampling JEL Classification C12 C14 C15 G13 G14 Thanks to Franz Palm Andrew Patton and a referee for comments. Thanks especially to Anisha Ghosh for research assistance and many comments. GAUSS computer code is available from the authors for carrying out all the routines of this paper. Department of Business Administration Korea University Seoul 136-701 Korea. Email Address chometrics@ z Department of Economics London School of Economics Houghton Street London WC2A 2AE United Kingdom. E-mail address . This research was supported in part through a grant from the Economic and Social Science Research Council. x Department of Economics Seoul National University Seoul 151-742 Korea. Email Address whang@. This work was supported by the Korea Research Foundation Grant funded by the Korean Government MOEHRD KRF-2005-041-B00074 . 1 1 Introduction The efficient market hypothesis EMH suggests that at any given time prices fully reflect all available information on a particular stock market. Thus .

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