An Investigation of the Existence of Day-of-the-week Anomaly among Bursa Malaysia Sectors during the COVID-19 Pandemic

Ng, Lay Mei (2023) An Investigation of the Existence of Day-of-the-week Anomaly among Bursa Malaysia Sectors during the COVID-19 Pandemic. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

Day-of-the-week anomaly can be defined as the abnormally high or low returns on specific days of the week as compared to other days. This calendar anomaly can be attributed to the behavioural finance theories which posit that investors behave irrationally as they allow psychological factors to influence their investment decisions. This study examines the existence of the day-of-the-week anomaly among Bursa Malaysia sectors during the COVID-19 pandemic. This research also evaluates the effects of various phases of government interventions on the temporal anomaly by segregating the study period into pre-government intervention and various levels of government interventions during the COVID-19 pandemic, namely the Movement Control Order (MCO), Conditional MCO (CMCO) and Recovery MCO (RMCO). This research is conducted based on the data on daily returns of the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) and seven sectoral indices from 29 January 2020 to 31 March 2021. In this study, the Generalised Autoregressive Conditional Heteroscedasticity model is applied as the estimation procedure. The empirical findings for the full study period reveal that the day-of-the-week effect exists in the FBM KLCI and all sectoral indices except for the construction sector. During the pre-government intervention period, the mean equation reflects the presence of the day-of-the-week effect in the FBM KLCI and five sectors, namely the construction sector, consumer products and services sector, financial services sector, industrial products and services sector and plantation sector. During the IV MCO period, the day-of-the-week effect is solely observed for the FBM KLCI, which has a positive Tuesday effect. During the CMCO period, there is a presence of the day-ofthe- week effect in all sectors except for the plantation sector. During the RMCO period, the FBM KLCI and four out of the seven sectors demonstrate the presence of the day-ofthe- week effect, which consists of the consumer products and services sector, financial services sector, industrial products and services sector and the plantation sector. In general, it appears that during the MCO period, the efficient market hypothesis is supported as all sectors lose their day-of-the-week effect, but during other periods, the behavioural finance theory is supported as some sectors have the day-of-the-week effect. The empirical findings have several implications. First, the results of this study may serve as a guide for policymakers to gauge the impact of the day-of-the-week effect and set the appropriate thresholds for the losses. From there, the policymakers can take the necessary measures to limit the losses for each sector should a widespread health crisis akin to the COVID-19 pandemic ever strikes again. Moreover, the findings of this research may assist the managers of public listed companies to estimate the stock returns of their firms and hedge the risks in advance through the use of derivative instruments when a pandemic similar to the COVID-19 pandemic occurs. Finally, the findings of this study provide greater insights to investors and portfolio managers to formulate investment strategies that could maximise their returns by investing in specific sectors on certain days of the week.