Day-of-the-week effects in financial contagion

Abstract

We propose a new approach to test for financial contagion, which accounts for the existence of day-of-the-week effects in stock returns. For a set of European markets, we provide evidence that contagion effects from the U.S. during the 2007-9 financial crisis varied across days of the week.

Financial Contagion Patterns in Individual Economic Sectors. The Day-of-the-Week Effect from the Polish, Russian and Romanian Markets

“…The findings show that the constructions and oil and gas sectors have shown signs of contagion through the domestic financial sector, while the others have been less affected by this process. Sewraj et al (2019) study the financial contagion process from a different perspective, by investigating if the impact of the crisis is similar across the days of the week or if it is calendar dependent. This approach is in line with the perspective of Baur (2012) in the sense that it presumes a not constant development of the contagion process, but the form it considers is different.…”

“…Thus, their approach does not take into account the findings of Baur (2012) and the other related studies which show that the GFC has impacted the economic sectors in a different manner. The current paper endeavors to fill this gap in literature, by taking into account, simultaneously, both the approach proposed by Baur (2012) and by Sewraj et al (2019).…”

“…To the best of my knowledge, this is a novel approach in financial literature, with no other study being concerned, simultaneously, with the mixed perspectives of Baur (2012) and Sewraj et al (2019)…”

“…He shows that the economic sectors from a country (depicted through their sector indices) can be impacted by the crisis in different ways and with different magnitudes. Sewraj et al (2019) also develop an alternative approach, showing that the contagion process is calendar dependent. The authors observe the presence of the day-of-the-week effect (hereafter, DOW) in the financial contagion process's evolution when studying developed European markets affected by the 2008 financial crisis.…”

“…The authors observe the presence of the day-of-the-week effect (hereafter, DOW) in the financial contagion process's evolution when studying developed European markets affected by the 2008 financial crisis. The current study endeavors to fill a gap in literature, by taking into account, simultaneously, the methodology of Baur (2012) and Sewraj et al (2019).…”