Daily returns seasonality and impact of stock index futures: evidence from the Kuala Lumpur Stock Exchange

• Main Authors: Mohamad, Azhar, Bacha, Obiyathulla Ismath, Ibrahim, Mansor
• Format: Article
• Language: English
• Published: KLSE and RIIAM 2003
• Subjects: HG4001 Financial management. Business finance. Corporation finance.; HG4501 Stocks, investment, speculation
• Online Access: http://irep.iium.edu.my/28415/1/Azhar_CMR.pdf; http://irep.iium.edu.my/28415/; http://www.mfa.com.my/cmr.html
• Institution: Universiti Islam Antarabangsa Malaysia

This paper examines the impact of Stock Index Futures (SIF) trading on Day of Week (DOW) pattern of daily Kuala Lumpur Stock Exchange returns. We address a total of four research questions using both a simple OLS model and a GARCH (1,1) specification. Three daily return measures, CTC, OTC, CTO are used. The impact of DOW pattern on the new T+3 day settlement is also examined. As documented in previous studies, we see evidence of a DOW pattern in daily stock returns in the period prior to SIF introduction. However in the period of following SIF introduction the DOW pattern diminishes. The null hypothesis that mean daily returns are equal across the week cannot be rejected. The T+3 day settlement rule also had an impact on stock market DOW pattern. Between SIF and trading rule change, while the SIF introduction reduced the DOW effect substantially, the T+3 implementation eliminated even the marginal individual day effects.