Abstract:
One of the significant anomalies of Efficient Market Hypothesis (EMH) is the seasonal effect. The existence of the seasonal effect implies market inefficiency. Most ofthe investors, especially international investors are more concerned with the market efficiency. The most common seasonal anomalies are the Day ofthe week effect, Day ofthe month effect, week ofthe month and the month ofthe year effect. According to past empirical studies Day of the week is the most talked anomaly among those. When the day of the week effect exists, investors can earn abnormal profit by buying the stock in low return day ofthe week and selling them at a higher return day ofthe week. In Sri Lankan context, all the studies on finding the existence of day of the week effects in stock return and volatility in Colombo Stock Exchange (CSE) are conducted for the whole market using All Share Price Index (ASPI). As all those studies mainly focused on ASPI and no studies focused on sector wise, this study examines the same problem focusing two sectors: Hotels and Travels (H&T), Investment Trusts (INV) in CSE. The daily returns for each sector over a period of two years from 2014 to 2016 are tested using three types of conditional time varying models, namely GARCH, EGARCH, and GJR-GARCH. The study finds strong evidence for the presence of day of the week effect in stock returns and in volatility ofthe two sectors. Among the five days ofthe week Thursday returns are negative in H&T and it is significantly higher than that of other days ofthe week. Only Monday returns are significant in INV and it is negative. While Monday volatility is significantly positive and higher than that of other days of the week in H&T, Thursdays and Fridays volatility are significantly different from zero and negative in INV.