Day-of-the-Week Effect and Investors’ Psychological Mood Testing in a Highly Mispriced Capital Market

Abstract

Research Aims: This research examines investors’ psychological moods which cause day-of-the-week anomalies in highly mispriced stock markets. Design/methodology/approach: We use a sample from the Indonesian capital market as, in the Asian region, this country is considered to have a highly mispriced capital market. We decompose the stock price index in Indonesia into speculative, less speculative, and non-speculative indexes. We employ the mean and variance regressions to control the heteroscedasticity and serial correlation. Novelties: Our novelties are two fold. We postulate a method to decompose stock price indexes in Indonesia (the JKSE, LQ 45, and Kompas 100) into speculative, less speculative, and non-speculative indexes. Secondly, we estimate the mean and variance levels simultaneously to get a robust estimation result of the anomaly. Research Findings: We empirically find that the behavior mood hypothesis is supported only during normal periods, when investors tend to be irrational and use their good mood to trade on speculative stocks on a Wednesday and sell them on Monday. In other periods, rationality and psychological effects play a role with Indonesian investors, when their mood is good they are more active in trading less speculative stocks, to avoid higher risks and earn higher returns from those less speculative and non-speculative stocks.

Pengaruh siklus bulan terhadap abnormal return saham dengan day effect sebagai variabel pemoderasi

“…Psikologi Investor dengan suasana hati yang baik cenderung membeli saham spekulatif pada hari Jum'at, yang menyebabkan return menjadi positif dan signifikan. Sebagaimana didukung hasil penelitian day effect oleh Luxianto et al, (2020) dan Floros & Tan (2013). Juga adanya keterkaitan dengan sistem kalendar bulan Jawa yang berdasar siklus bulan yang dianut di etnis jawa yang menggaggap hari Jum'at adalah hari yang istimewa dari pada hari yang lain berdasarkan sifat kesakralannya.…”

“…Sedangkan hari terbaik untuk investor adalah hari Jum'at, dimana hari terakhir bekerja di akhir pekan membuat perasaan good mood sehingga investor lebih optimis. Hal ini sejalan dengan penelitianLuxianto et al, (2020) pada penelitian pasar saham indonesia yang mendukung hipotesis mood psikologi investor. Dimana mood investor cenderung naik pada hari Jum'at dan mengalami penurunan pada hari Senin.…”

Eficiencia del mercado y anomalías de calendario pos-COVID: perspectivas de bitcoin y ethereum

“…The day-of-the-week effect is observed in capital markets where certain days exhibit distinct patterns in terms of volatility and returns (Luxianto et al, 2020). Researchers and investors have been interested in this effect as it can offer insights into market dynamics and potentially impact trading strategies (Zilca, 2017).…”

Day of the week effect on select scheduled commercial banks in India

“…However, they provide valuable insights into the role of irrational behavior and psychological factors in shaping trading activities and investment outcomes in Indonesia. Further research and analysis could help deepen the understanding of these phenomena and their implications for investors and market participants [4].…”