Day-of-The-Week Effects and Volatility Clustering in Banking Stocks: GARCH-Based Evidence from India’s Emerging Market

Understanding anomalies in stock markets, including day-of-the-week effects, is crucial for developing a comprehensive view of market ‎behaviour and efficiency. It highlights the complex interplay between rational economic principles and behavioural factors in shaping ‎financial markets. In this context, the present study evaluates how weekday patterns affect the daily market dynamics of BSE Bankex (from ‎June 23, 2003, to July 31, 2024) and Nifty Bank (from June 9, 2005, to July 31, 2024), employing Generalized Autoregressive Conditional ‎Heteroskedasticity (GARCH), Fractionally Integrated GARCH (FIGARCH), Threshold GARCH (TGARCH), and Exponential GARCH ‎‎(EGARCH) models. While overall returns do not exhibit significant weekday effects, the findings show a positive return on the baseline ‎day (Monday), reduced volatility on Tuesdays, and elevated volatility levels on Fridays. The analysis also confirms robust volatility ‎clustering driven by both past shocks and past volatility, along with leverage and long memory effects. The study concludes that Indian ‎banking stock volatility shows strong day-of-the-week effects, most notably a “calm Tuesday and volatile Friday” pattern, alongside robust ‎volatility clustering, persistence, leverage asymmetry, and long memory. Collectively, these results point towards the presence of persistent market reactions and ‎potential inefficiencies in banking stock pricing, providing insights for investors seeking to capitalize on such inefficiencies ‎and evidence for policymakers aiming to enhance financial market stability‎.