1 European Journal of Economics, Finance And Administrative Sciences - Issue (2007) EUROPEAN JOURNAL OF ECONOMICS, FINANCE AND ADMINISTRATIVE SCIENCES ISSN: 1450-2275 Issue October, 2007 European Journal of Economics, Finance And Administrative Sciences - Issue (2007) EUROPEAN JOURNAL OF ECONOMICS, FINANCE AND ADMINISTRATIVE SCIENCES http://www.eurojournals.com/EJEFAS.htm Editor-In-Chief Adrian M Steinberg, Wissenschaftlicher Forscher Editorial Advisory Board Bansi Sawhney, University of Baltimore Jwyang Jiawen Yang, The George Washington University Zhihong Shi, State University of New York Zeljko Bogetic, The World Bank Jatin Pancholi, Middlesex University Christos Giannikos, Columbia University Hector Lozada, Seton Hall University Jan Dutta, Rutgers University Chiaku Chukwuogor-Ndu, Eastern Connecticut State University Neil Reid, University of Toledo John Mylonakis, Hellenic Open University (Tutor) M Femi Ayadi, University of Houston-Clear Lake Emmanuel Anoruo, Coppin State University H Young Baek, Nova Southeastern University Jean-Luc Grosso, University of South Carolina Sumter Richard Omotoye, Virginia State University Mahdi Hadi, Kuwait University Jean-Luc Grosso, University of South Carolina Ali Argun Karacabey, Ankara University Felix Ayadi, Texas Southern University Bansi Sawhney, University of Baltimore David Wang, Hsuan Chuang University Cornelis A Los, Kazakh-British Technical University Leo V Ryan, DePaul University Richard J Hunter, Seton Hall University Said Elnashaie, Auburn University Panayiotis Tahinakis, University of Macedonia Mukhopadhyay Bappaditya, Management Development Institute M Carmen Guisan, University of Santiago de Compostela Subrata Chowdhury, University of Rhode Island Teresa Smith, University of South Carolina Wassim Shahin, Lebanese American University Mete Feridun, Cyprus International University Teresa Smith, University of South Carolina Sumter Ranjit Biswas, Philadelphia University Katerina Lyroudi, University of Macedonia Maria Elena Garcia-Ruiz, University of Cantabria Zulkarnain Muhamad Sori, University Putra Malaysia Indexing / Abstracting European Journal of Social Sciences is indexed in Scopus, Elsevier Bibliographic Databases, EMBASE, Ulrich, DOAJ, Cabell, Compendex, GEOBASE, and Mosby European Journal of Economics, Finance And Administrative Sciences - Issue (2007) Aims and Scope The European Journal of Scientific Research is a quarterly, peer-reviewed international research journal that addresses both applied and theoretical issues The scope of the journal encompasses research articles, original research reports, reviews, short communications and scientific commentaries in the fields of economics, finance and administrative sciences Editorial Policies 1) The journal realizes the meaning of fast publication to researchers, particularly to those working in competitive & dynamic fields Hence, it offers an exceptionally fast publication schedule including prompt peer-review by the experts in the field and immediate publication upon acceptance It is the major editorial policy to review the submitted articles as fast as possible and promptly include them in the forthcoming issues should they pass the evaluation process 2) All research and reviews published in the journal have been fully peer-reviewed by two, and in some cases, three internal or external reviewers Unless they are out of scope for the journal, or are of an unacceptably low standard of presentation, submitted articles will be sent to peer reviewers They will generally be reviewed by two experts with the aim of reaching a first decision within a two-month period Suggested reviewers will be considered alongside potential reviewers identified by their publication record or recommended by Editorial Board members Reviewers are asked whether the manuscript is scientifically sound and coherent, how interesting it is and whether the quality of the writing is acceptable Where possible, the final decision is made on the basis that the peer reviewers are in accordance with one another, or that at least there is no strong dissenting view 3) In cases where there is strong disagreement either among peer reviewers or between the authors and peer reviewers, advice is sought from a member of the journal's Editorial Board The journal allows a maximum of three revisions of any manuscripts The ultimate responsibility for any decision lies with the Editor-in-Chief Reviewers are also asked to indicate which articles they consider to be especially interesting or significant These articles may be given greater prominence and greater external publicity 4) Any manuscript submitted to the journals must not already have been published in another journal or be under consideration by any other journal Manuscripts that are derived from papers presented at conferences can be submitted even if they have been published as part of the conference proceedings in a peer reviewed journal Authors are required to ensure that no material submitted as part of a manuscript infringes existing copyrights, or the rights of a third party Contributing authors retain copyright to their work 5) The journal makes all published original research immediately accessible through www.EuroJournals.com without subscription charges or registration barriers Through its open access policy, the journal is committed permanently to maintaining this policy This process is streamlined thanks to a user-friendly, web-based system for submission and for referees to view manuscripts and return their reviews The journal does not have page charges, color figure charges or submission fees However, there is an article-processing and publication fee payable only if the article is accepted for publication Submissions All papers are subjected to a blind peer review process Manuscripts are invited from academicians, research students, and scientists for publication consideration The journal welcomes submissions in all areas related to science Each manuscript must include a 200 word abstract Authors should list their contact information on a separate paper Electronic submissions are acceptable The journal publishes both applied and conceptual research Articles for consideration are to be directed to the editor through ejefas@eurojournals.com In the subject line of your e-mail please write "EJEFAS submission" European Journal of Economics, Finance And Administrative Sciences - Issue (2007) Articles are accepted in MS-Word or pdf formats Contributors should adhere to the format of the journal All correspondence should be directed to the editor There is no submission fee Publication fee for each accepted article is $150 USD European Journal of Economics, Finance and Administrative Sciences is published in the United States of America at Lulu Press, Inc (Morrisville, North Carolina) by EuroJournals, Inc European Journal of Economics, Finance And Administrative Sciences - Issue (2007) European Journal of Economics, Finance and Administrative Sciences Issue October, 2007 Contents Stock Market Trends, Day of the Week Effect and Investor’s Behavior after the September’s 2001 Attacks Dimitris Balios and Sophia Stavraki 6-17 Readability of Financial Statement Footnotes of Kuwaiti Corporations Aly M Hewaidy 18-28 An Application of Optimum Currency Area (OCA) Analysis to Egypt Sherine El Hag 29-38 Openness-Inflation Puzzle for Pakistan: Under Two Alternative Approaches Khalil Ahmad and Muhammad Shahbaz 39-50 The Institutions and Banking Performance in the OECD Mahmoud Khalil, Shereef Ellaboudy and Arthur Denzau 51-59 Are Share Issue Privatisations Fairly Priced? Panayotis Alexakis 60-68 Trends in the Market Growth for Proton Exchange Membrane Fuel Cells (PEMFC): A Review of the Market Dynamics Cihat Polat and Nurcan Klnỗ Highly Leveraged Firms and Corporate Performance in Distressed Industries Anna Merika, Theodore Syriopoulos and Christos Negakis Reengineering America- PART I: The Socioeconomic Costs of Urban Sprawl: A Socioeconomic Analysis of Exploitative Cross-Industry Diversification Strategies Syrous K Kooros and George Alexakis Economic Changes that Effect the Probability of Success in R&D Nissim Ben-David Young Adult Perception Towards Celebrity Endorsement: A Comparative Study of Single Celebrity and Multiple Celebrities Endorsement Farida Saleem 69-92 93-101 102-113 114-127 128-139 European Journal of Economics, Finance and Administrative Sciences ISSN 1450-2887 Issue (2007) © EuroJournals, Inc 2007 http://www.eurojournalsn.com Stock Market Trends, Day of the Week Effect and Investor’s Behavior after the September’s 2001 Attacks Dimitris Balios Department of Economics University of Piraeus 80, Karaoli and Dimitriou st 185 34 Piraeus, Greece E-mail: dbalios@econ.uoa.gr Sophia Stavraki Department of Economic Sciences National and Kapodistrian University of Athens 5, Stadiou Str., 2nd floor 105 62 Athens, Greece E-mail: sstavrak@econ.uoa.gr Abstract In this study we examine the existence of the phenomenon «Day of the Week Effect» in six European Indices after the September’s 2001 attacks in USA, dividing the whole period according to the stock market’s trend We conclude that the phenomenon of the «Day of the Week Effect» seems to be weaker than it was in previous decades as a result of investor’s behavior Investors are more mature, well educated, with more professional attitude, characteristics that help stock markets to become more efficient Keywords: Day of the week effect, market efficiency, international financial markets, stock market trends, investor’s behavior Jel Classification Codes: G10, G14, G15 I Introduction According to Fama (1976), a market is efficient if prices fully and instantaneously reflect all available information and no profit opportunities are left unexploited In an efficient situation, new information is unpredictable, so stock market returns cannot be predicted and there is therefore no trading pattern, which an investor can follow in order to make unexpected profits The day of the week effect refers to the existence of a pattern of stock returns during the week, a seasonal «anomaly», which contradicts the «Efficient Market Hypothesis» Cross (1973) and French (1980) were the first to observe a specific seasonality in stock returns during the week, that was named «Day of the Week Effect» According to this phenomenon, the average stock market return on the last trading day of the week (Friday) is positive and is the highest across all days of the week and the return on the first trading day of the week (Monday) is negative and is the lowest across the same period As we report in the literature review in the next session, all these studies examine the existence of the phenomenon in a specific period This study comes to examine the phenomenon, of course during a specific period, but in addition, we divide this period in parts according to the market trend European Journal of Economics, Finance And Administrative Sciences - Issue (2007) Balios and Xanthakis examined the existence of the phenomenon for the period January 1994 – August 2001, dividing this period in a sideway period, in an uptrend period and a downtrend one They found that the week effect tends to fall away from the classical «Day of the week effect» possibly because investors adjust their behavior in the previous findings in a way balancing the pattern of returns In the sideway period, they find that there is no particular pattern of returns for the indices and the disinterest in dealing in the stock market to be a reason for this efficient pattern of returns They supported that in the uptrend period, investors are very optimistic for the price walk and the companies try to boost this trend That’s why they find positive returns (in most of the indices) on Fridays and Mondays something that maybe is happening because companies announce or are expected to announce their good news during the week and investors try to take positions from Friday to Monday so that they could profit from the difference from the next week’s higher expected price Finally, in the downtrend period, they find a strong Wednesday negative effect in all indices They support that in downtrend periods there is a waiting attitude from investors for good news like the rate of interest which is determined by the European Central Bank (ECB) They conclude that Wednesday is one day before the bank meeting and a day that investors could incorporate in their behavior the ECB ‘s expected action which has to with the denial to reduce the interest rates for the examined period In this study we examine the phenomenon for the period after the September’s 2001 attacks in the USA for six European Stock Indices We are interested in finding how investors react after the attacks, how their trading behavior influences the «Day of the week effect», and finally we compare these results with the Balios and Xanthakis results The rest of the paper is organized as follows Section II provides the literature review Section III contains the data and methodology Section IV contains the empirical results and in Section V the conclusions of the paper are reported II Literature Review The first studies that indicated the day of the week effect were written for the major stock markets, like the US markets For the US markets, except from Cross (1973) and French (1980), day effects or daily anomalies have also been mentioned by Gibbons and Hess (1981), Lakonishok and Levi (1982), Rogalski (1984), Keim and Stambaugh (1984), Smirlock and Starks (1986), Harris (1986), Lakonishok and Smidt (1988) Since then, similar results have been found in several stock markets inside and outside the United States In this literature review we emphasize in studies after 2001 In recent studies, several researchers have investigated the seasonality of the day of the week effect Chen et al (2001) examine the day of the week effect in the stock markets of China for the recent years They find negative returns on Tuesday Even though the results of this paper support the evidence of the day of the week effect, they content that this evidence depends on the estimation method and sample period When the transaction costs are taken into account, the opportunity for arbitrage profits from the day of the week effect seems to be very small The conclusion is consistent with the efficient market; there is no clear evidence of the day of the week effect Kiymaz and Berument (2003) investigate the day of the week effect on the volatility and return of major stock markets (German, Japan, US, Canada and United Kingdom) for the time period from 1998 to 2002 Their findings are consistent with the day of the week effect both for returns and volatility In addition, there are many studies that examine the day of the week effect at the emerging markets Cabello and Ortiz (2004) investigate the day of the week and month of the year effect for Latin America stock markets The paper supports the existence of calendar anomalies They find the lowest and negative returns on Mondays and high returns on Fridays Hui (2005) examines the day of the week effect at Asian-Pacific markets during the period of Asian financial crisis and also tests the presence of weekend effect in developed stock markets of US European Journal of Economics, Finance And Administrative Sciences - Issue (2007) and Japan The paper supports no evidence of the day of the week effect in capital markets for the recent years, in both Asian Pacific and US capital markets Holden et al (2005) examine the day of the week effect for the daily returns of stock market index of Thailand during the period of Asian financial crisis This study uses a general model for the test of anomalies included not only the day of the week effect but also the month of the year and days after holidays and within month effects The conclusion of the test performed is that the calendar effects improve the forecast accuracy for daily returns Joshi and Bahadur (2006) study the day of the week effect empirically in the Nepalese stock market for daily data of Nepal Stock Exchange Index from 1995 to 2004 They find persistent evidence of day-of-the-week anomaly, and they also document no evidence of month-of-the-year anomaly and half-month effect Their result for the month-of-the-year anomaly is consistent to the finding observed for the Jordanian stock market and that for the day-of-the-week anomaly to the Greek stock market Patev et al (2003) examine the presence of the day-of-the-week effect anomaly in the Central European stock markets during the period 1997 to 2002 Their results indicated that the Czech and Romanian markets have significant negative Monday returns while the Slovenian market has significant positive Wednesday returns and has non-significant negative returns on Fridays The Polish and Slovak markets have no day-of-the week effect anomaly Lyroudi et al (2002) examine empirically the day of the week effect anomaly in the Athens Stock Exchange (ASE) for the period 1994 to 1999 Their results indicated that the day of the week effect is strongly observed in the Greek Stock market during the second sub period (1996-1999) Chukwuogor-Ndu (2006) reported the existence of the phenomenon in the BVSP index (Brazil), but not for MRVE (Argentina) and MXSE (Mexico) indices III Data and Methodology Data The data set used in this study consists of six European Index values In particular, the six indices used are, FTSE 100, GDAX 30, CAC 40, Madrid General, MibTel and ASE General corresponding to, United Kingdom, Germany, France, Spain, Italy and Greece, respectively The data used in this study concerns the period from Monday 1st October of 2001 to Friday 2nd February of 2007 and is obtained directly from their stock exchanges The examined period consists of 279 weeks, so the created data series has 1395 observations For econometric reasons, for working days that the stock markets did not open and of course the indices did not change, the value of the previous day has been used The whole period from October 2001 to February 2007 has been divided into subperiods based on a different market trend The trend of an index or a value can be upward, downward or sideway An uptrend movement of stock market indices is characterized by an uptrend pattern of prices that, in our case, can be easily observed in their graphs Because of the almost same date reversal of European stock market’s trend, we chose the same sub-periods for the six European indices, so the observations used for the econometric analysis are the same The time period and the number of observations used for each market are shown in Table Table Period Downtrend Uptrend FTSE 100 1/10/200128/3/2003 (390) 31/3/20032/2/2007 (1395) CAC 40 1/10/200128/3/2003 (390) 31/3/20032/2/2007 (1395) Notes: Numbers in parentheses depict observations used in each period Dax 1/10/200128/3/2003 (390) 31/3/20032/2/2007 (1395) Mibtel 1/10/200128/3/2003 (390) 31/3/20032/2/2007 (1395) Madrid 1/10/200128/3/2003 (390) 31/3/20032/2/2007 (1395) ASE 1/10/200128/3/2003 (390) 31/3/20032/2/2007 (1395) European Journal of Economics, Finance And Administrative Sciences - Issue (2007) The returns used in each of the time series are computed as follows: P rt = ln t Pt −1 rt : the day return Pt : the value of the index Pt-1 : the value of the index the previous working day Methodology A test of a day of the week effect is a market efficiency test, which is based on return data series A stock value is changing because of the arrival of new information The way new information is coming to the market is not constant, so the conditional variance of the daily price change is considered to be an increasing function of the rate at which new information enters the market What one must take into account is that the variance is time dependent and in order to produce the appropriate asymptotic distributions, one must correct the time series from heteroskedasticity The best way to correct a model from the non-constant heteroskedasticity is the GARCH(p,q) models, where p refers to the squared error terms and q to the lag on variance (Bollerslev, 1986) The model employed can be written as: rt = b1Mo + b2Tu + b3 We + b4Th + b5Fr + ci rt-i + ut with ut = σtzt, zt ~ i.i.d with E(zt) = and Var(zt) = and σ2t = Var(rt/It-1) the conditional variance based on the information set It-1 The use of a lagged observation of the return (if it is useful) happens in order to correct the model from autocorrelation The method used for the estimations was the OLS (Ordinary Least Squares) method and whenever heteroskedasticity was present, the method used was the maximum likelihood and the GARCH(p,q) models (the econometric software used for the model estimation was E-views) In the model, the variables Mo, Tu, We, Th, Fr are the dummy variables of Monday, Tuesday, Wednesday, Thursday and Friday, respectively For example, the Mo dummy variable, takes the value of if the observation falls on Monday and zero in all other cases The disturbance error term is depicted by ut The coefficients b1 to b5 are the mean returns for the five trading days As it has been mentioned before, in an efficient market there will not be a pattern in returns during the week, so the unexpected return for each day of the week will be the same and close to zero and the z-statistic measuring the significance of the dummy variables will be small enough for the dummy variables to be statistically significant If an estimator is statistically significant (5% level of significance), we conclude the existence of a day of the week effect which is evidence for inefficiency IV Descriptive Statistics Table presents descriptive statistics for the whole period data series FTSE 100 index has the lowest return (0.018%) and the General Madrid index has the biggest one (0.058%), while the MibTel index has the lowest standard deviation (1.025%) and the GDAX the biggest standard deviation (1.579%) among all indices The kurtosis measures indicate that the return series are leptokurtic compared to the normal distribution Table also reports the Augmented Dickey - Fuller statistics for both the logarithm of the stock prices and the logarithmic first differences (returns) The hypothesis of a single unit root in the logarithm of the stock prices is accepted, but is strongly rejected in the logarithmic first differences 10 European Journal of Economics, Finance And Administrative Sciences - Issue (2007) Table Whole period Mean Median Maximum Minimum Std Dev Skewness Kurtosis Jarque – Bera ADF (levels) ADF (returns) FTSE 100 0.018% 0.017% 5.904% -5.589% 1.068% -0.135 7.755 1317.714 -0.178 -18.617** CAC 40 0.024% 0.025% 7.002% -6.045% 1.381% 0.056 6.794 837.095 -0.032 -19.183** DAX 0.034% 0.057% 7.553% -6.336% 1.579% 0.022 6.135 571.263 0.377 -18.309** MIBTEL 0.033% 0.053% 5.292% -4.416% 1.025% -0.026 6.041 537.411 0.531 -17.327** MADRID 0.058% 0.071% 4.857% -4.339% 1.080% 0.028 5.496 362.052 1.858 -17.237** ASE 0.055% 0.007% 4.974% -6.107% 1.046% -0.081 5.042 243.823 1.237 -15.441** ** denotes significance at the 1% level of significance In Table 2A we can study descriptive statistics for the downtrend period data series GDAX index has the lowest return (-0.137%) and the biggest standard deviation (2.432%) among all indices For this subperiod too, the hypothesis of a single unit root in the logarithm of the stock prices is accepted, but is strongly rejected in the logarithmic first differences Table 2A Downtrend period Mean Median Maximum Minimum Std Dev Skewness Kurtosis Jarque – Bera ADF (levels) ADF (returns) FTSE 100 -0.072% -0.068% 5.904% -5.589% 1.660% 0.041 4.366 30.371 -0.592 -10.216** CAC 40 -0.103% -0.107% 7.002% -6.045% 2.147% 0.250 3.773 13.772 -0.438 -10.438** DAX -0.137% -0.059% 7.553% -6.336% 2.432% 0.195 3.393 4.985 -0.043 -9.905** MIBTEL -0.059% -0.071% 5.292% -4.416% 1.579% 0.258 3.333 6.132 -0.662 -9.456** MADRID -0.035% 0.000% 4.857% -4.339% 1.642% 0.277 3.140 5.304 -0.929 -9.645** ASE -0.098% -0.072% 4.021% -3.007% 1.109% 0.365 3.898 21.708 0.122 -7.788** ** denotes significance at the 1% level of significance Table 2B presents mean returns, standard deviations and other descriptive statistics for the uptrend period data series ASE index has the biggest return (0.114%) and GDAX has the biggest standard deviation (1.075%) among all indices For the uptrend period too, the hypothesis of a single unit root in the logarithm of the stock prices is accepted, but is strongly rejected in the logarithmic first differences Table 2B Uptrend period Mean Median Maximum Minimum Std Dev Skewness Kurtosis Jarque – Bera ADF (levels) ADF (returns) FTSE 100 0.053% 0.056% 3.133% -2.963% 0.716% -0.213 4.529 105.02 -1.109 -14.936** CAC 40 0.073% 0.081% 4.047% -4.353% 0.925% 0.073% 4.982 176.27 -1.105 -15.971** ** denotes significance at the 1% level of significance DAX 0.100% 0.110% 5.671% -4.741% 1.075% 0.100% 5.483 257.04 -1.499 -15.361** MIBTEL 0.068% 0.095% 2.778% -3.879% 0.698% 0.068% 5.666 370.46 -0.817 -14.149** MADRID 0.094% 0.114% 3.026% -4.124% 0.755% 0.094% 5.172 233.37 0.037 -13.585** ASE 0.114% 0.082% 4.974% -6.107% 1.016% 0.024% 5.815 342.45 -1.451 -13.632** 125 European Journal of Economics, Finance And Administrative Sciences - Issue (2007) (r + S B )(γ 0B + γ 1B q B (φB )) − qB (φB )[YB + q A (φ A )ε B1 − WB ] α= q B (φB )ε B − zero − − zero (16) − ∂ q B (φ B ) ∂ φ B ∂ q A (φ A ) ∂ φ A B (r + S B )γ ε B ε ∂φ B ∂YA ∂φ A ∂YA B1 dα =− − 0 ε B2 + − ? ∂ q B (φ B ) ∂ φ B ∂ q A (φ A ) ∂ φ A B ε B1 (r + S B )γ ε B ∂φ B ∂WB ∂φ A ∂WB dα ?0 =− − + dWB ε B2 ε B2 (q B (φ B )ε B2 ) − zero ∂ q B (φ B ) ∂ φ B B (r + S B )γ ε B ∂φ B ∂b A dα =− db A (q B (φ B )ε B ) − − − ∂ q A (φ A ) ∂ φ A ε ∂φ A ∂b A B1 −