Short Selling And The Weekend Effect: Evidence From Malaysia Stock Market 2007 - 2017
Volume 1 - Issue 3, September 2017 Edition
[Download Full Paper]
Vikneswaran S/O Manual, Lim Ying Mei
Nonshortable stock, Shortable stock, Short selling, Weekend effect
Weekend effect is a complex phenomenon that requires much research in order to understand the dynamic factor affecting it. The short selling mechanism in the Malaysia stock market provides a unique opportunity to investigating weekend effect where some stocks are allowed for short selling while others are not allowed for short selling. Thus, this paper has examined daily stock returns of shortable and nonshortable stock in Malaysia stock market for the period 14 August 2007 to 26 January 2017. The research is conducted by applying GARCH and EGARCH model because of heteroscedasticity has been found by ARCH-LM test which showed that the weekend effect is present in shortable stock return. No evidence of weekend effect was found for nonshortable stock. These results indicate that short selling of stock maybe one of the factors that affecting the weekend effect in Malaysia stock market. This is because short sellers face a greater risk if they hold their short positions over the weekend. So, they tend to close their short positions on Friday, which cause the buying pressure to increase before the weekend and reestablish their positions on next first day of trading which result in increased selling pressure that will cause the stock price decreases and thus contribute to the weekend effect. This study also suggests that Malaysia stock market is weak-form inefficient as a result of the existence of weekend effects.
 D.B. Keim and R.F. Stambaugh, â€œA Further Investigation of the Weekend Effect in Stock Returns,â€ The Journal of Finance, 39 (3), pp. 819-835, 1984.
 D.B. Keim, â€œTrading Patterns, Bid-Ask Spreads and Estimated Security Returns. The Case of Common Stocks at Calendar Turning Points,â€ Journal of Financial Economics, 25 (1), pp. 75-97, 1989.
 K. Wang, Y. Li and J. Erickson, â€œA New Look at the Monday Effect,â€ The Journal of Finance, 52 (5), pp. 2171-2186, 1997.
 F.S. Cheong, â€œDebunking Two Myths of the Weekend Effect,â€ International Journal of Financial Studies, 4 (2), pp. 1-9, 2016.
 H. Chen and V. Singal, â€œRole of Speculative Short Sales in Price Formation: The Case of the Weekend Effect,â€ The Journal of Finance, 58 (2), pp. 685-705, 2003.
 F. Reilly and K. Brown, Investment Analysis and Portfolio Management, Thomson South-Western, Cincinnati, 2013.
 Bursa Malaysia Berhad, â€œThe Reintroduction of Securities Borrowing and Lending and Regulated Short Selling,â€ Dec. 22, 2006. [Online]. Available: http://www.bursamalaysia.com/misc/securities_equities_bm_cir_rr16_221206.pdf [Accessed: Mar. 1, 2017].
 Star Media Group Berhad, â€œMalaysia May End Ban on Short-Selling,â€ Feb. 15, 2005. [Online] Available: http://www.thestar.com.my/business/business-news/2005/02/15/malaysia-may-end-ban-on-shortselling/ [Accessed: Mar. 1, 2017].
 H. Bessembinder, â€œTick Size, Spreads, and Liquidity: An Analysis of Nasdaq Securities Trading Near Ten Dollars,â€ Journal of Financial Intermediation, 9 (3), pp. 213-239, 2000.
 A.B.M. Nasir, S. Mohamad and M.A.A. Hamid, â€œStock Returns and the Weekend Effect: The Malaysian Experience,â€ Pertanika Journal of Social Science & Humanities, 11 (1), pp. 107-114, 1988.
 R.C.J. Chia, V.K.S. Liew and S.A.W.S.K. Wafa, â€œCalendar Anomalies in the Malaysian Stock Market,â€ Munich Personal RePEc Archive, 516 (1), pp. 1-27, 2006.
 N.M.N. Muhammad and N.M.N. Rahman, â€œEfficient Market Hypothesis and Market Anomaly: Evidence from Day-Of-The-Week Effect of Malaysian Exchange,â€ International Journal of Economics and Finance, 2 (2), pp. 35-42, 2010.
 S.Y. Lim and R.C.J. Chia, â€œStock Market Calendar Anomalies: Evidence from ASEAN-5 Stock Markets,â€ Economics Bulletin, 30 (2), pp. 1-9, 2010.
 S.E. Christophe, M.G. Ferri and J.J. Angel, â€œShort Selling and the Weekend Effect in Nasdaq Stock Returns,â€ The Financial Review, 44 (1), pp. 31-57, 2009.
 J. Cai, H.S. Kazemi, J. He and W. Zhai, â€œWeekend Effect and Short Sales: International Evidence,â€ International Atlantic Economic Society, 19 (2), pp. 209-211, 2013.
 B.M. Blau, B.F.V. Ness and R.A.V. Ness, â€œShort Selling and Weekend Effect for NYSE Securities,â€ Financial Management, 38 (3), pp. 603-630, 2009.
 I. Dastan and M. Aksoy, â€œShort Selling and the Day of the Week Effect for Istanbul Stock Exchange,â€ International Research Journal of Finance and Economics, 70 (1), pp. 205-216, 2011.
 P. Gao, J. Hao, I. Kalcheva and T. Ma, â€œShort Sales and the Weekend Effect: Evidence from Natural Experiment,â€ Journal of Financial Markets, 26 (1), pp. 85-102, 2015.
 F. Cross, â€œThe Behavior of Stock Prices on Fridays and Mondays,â€ Financial Analysts Journal, 29 (6), pp. 67-69, 1973.
 K.R. French, â€œStock Returns and the Weekend Effect,â€ Journal of Financial Economics, 8 (1), pp. 55-69, 1980.
 A. Agrawal and K. Tandon, â€œAnomalies or Illusions? Evidence from Stock Markets in Eighteen Countries,â€ Journal of International Money and Finance, 13 (1), pp. 83-106, 1994.
 H. Berument and H. Kiymaz, â€œThe Day of the Week Effect on Stock Market Volatility. Journal of Economics and Finance, 25 (2), pp. 181-193, 2001.
 E. Barone, â€œThe Italian Stock Market: Efficiency and Calendar Anomalies,â€ Journal of Banking and Finance, 14 (1), pp. 483-510, 1990.
 R.M. Brooks and H. Kim, â€œThe Individual Investor and the Weekend Effect: A Reexamination with Intraday Data,â€ The Quarterly Review of Economics and Finance, 37 (3), pp. 725-737, 1997.
 N.P.R. Deyshappriya, â€œAn Empirical Investigation on Stock Market Anomalies: The Evidence from Colombo Stock Exchange in Sri Lanka,â€ International Journal of Economics and Finance, 6 (3), pp. 177-187, 2014.
 R. Thaler, â€œAnomalies: Seasonal Movements in Security Prices II: Weekend, Holiday, Turn of the Month, and Intraday Effects,â€ Economic Perspectives, 1 (1), pp. 169-177, 1987.
 C.R. Kothari, Research Methodology: Methods and Techniques, New Age International Limited, New Delhi, 2004.
 M. Saunders, P. Lewis and A. Thornhill, Research Methods for Business Students, Pearson Education Limited, Harlow, 2007.
 N. Walliman, Research Methods: The Basics, Routledge Ltd, London, 2011.
 L. Kalof, A. Dan and T. Dietz, Essentials of Social Research, Open University Press, Berkshire, 2008.
 L. Blaxter, C. Hughes and M. Tight, How to Research, Open University Press, Berkshire, 2010.
 U. Sekaran, Research Methods for Business: A Skill-Building Approach, John Wiley & Sons, New York, 2003.
 R. Kumar, Research Methodology: A Step-By-Step Guide for Beginners, SAGA Publication Inc, Los Angeles, 2011.
 C. Dewberry, Statistical Methods for Organizational Research: Theory and Practice, Taylor and Francis, London, 2004.
 M. Wisniewski, Quantitative Methods for Decision Makers, Prentice Hall, Harlow, 2005.
 D. Water, Quantitative Methods for Business, Financial Times Prentice Hall, Harlow, 2011.
 J. Johnston and J. Dinardo, Econometric Methods, McGraw-Hill Education, New York, 2007.
 R.F. Engle, â€œAutoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation,â€ Econometrica, 50 (4), pp. 987â€“1008, 1982.
 T. Bollerslev, â€œGeneralized Autoregressive Conditional Heteroskedasticity,â€ Journal of Econometrics, 31 (3), pp. 307-327, 1986.
 C. Brooks, Introductory Econometrics for Finance, Cambridge University Press, Cambridge, 2008.
 D.B. Nelson, â€œConditional Heteroskedasticity in Asset Returns: A New Approach,â€ Econometrica, 59 (2), pp. 347â€“370, 1991.
 P. Srinivasan and M. Kalaivani, â€œDay-Of-The-Week Effects in the Indian Stock Market,â€ Munich Personal RePEc Archive, 46805 (1), pp. 1-22, 2013.
 D.N. Gujarati and D.C. Porter, Basic Econometrics, McGraw-Hill Education, New York, 2009.
 M.K. Al-Jafari, â€œAn Empirical Investigation of the Day-Of-The-Week Effect on Stock Returns and Volatility: Evidence from Muscat Securities Market,â€ International Journal of Economics and Finance, 4 (7), pp. 141-149, 2012.
 J.H. Stock and M.W. Watson, Introduction to Econometrics, Pearson Education, Boston, 2007.