Changes to the trading calendar and the day of the week effect in returns and volatility of the Saudi Stock Exchange

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Until June 29, 2013, the trading days of the Saudi Stock Exchange (TADAWUL) were from Sunday to Wednesday. From June 29, 2013, TADAWUL changed trading days and started trading from Sunday to Thursday. This paper investigates whether this change has impacted the day-of-the-week effect on returns and volatility of the Saudi Stock Exchange. After estimating several GARCH-type models, the EGARCH (2,2) model was selected for the analysis. The study found that the stock return on the week’s first trading day (Saturday) was positive during the previous trading calendar.
In contrast, the current trading calendar observed a positive stock return on the last trading day of the week (Thursday). Further, a negative volatility exists at the end of the week during the previous trading calendar. At the beginning of the week, there is a high degree of positive volatility during the current trading calendar. These results indicate that the behavior of stock returns is different between the two trading calendar regimes. In addition, the behavioral patterns on other trading days suggest that the Saudi stock market does not conform to the weak form of the efficient market hypothesis. The above findings indicate that investors in the Saudi stock market could devise trading rules to predict the market index and earn abnormal returns consistently.

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    • Table 1. Test results for heteroscedasticity in returns
    • Table 2. Selecting the model with the best fit
    • Table 3. EGARCH (2, 2) mean and variance equation
    • Data curation
      Abdulelah Alsayari
    • Formal Analysis
      Abdulelah Alsayari
    • Investigation
      Abdulelah Alsayari, Guneratne Wickremasinghe
    • Visualization
      Abdulelah Alsayari
    • Writing – original draft
      Abdulelah Alsayari
    • Conceptualization
      Guneratne Wickremasinghe
    • Methodology
      Guneratne Wickremasinghe
    • Project administration
      Guneratne Wickremasinghe
    • Supervision
      Guneratne Wickremasinghe
    • Validation
      Guneratne Wickremasinghe
    • Writing – review & editing
      Guneratne Wickremasinghe