Resumen de Economic cycles and calendar effects in stock prices: Evidence from Spanish market
This article examines the relationship between economic cycles and the day-of-the-week effects in Spanish market returns. During the period 1993 to 2011 the Spanish economy has experienced significant changes in their economic performance. In this period it is possible to identify three large and distinct economic sub periods. These sub periods provide an opportunity to evaluate the effect of the underlying economic fundamentals on the calendar effects. The effects of the sub periods� economic fundamentals on the day-of-the-week returns are assessed using a methodology incorporating orthogonal contrasts variables. This approach address the problem of multiple testing that arises when tests for the simultaneous effect of multiple variables on the dependent variable and the respective t statistics on the variables will not be independent since all the test statistics contain the same estimated term in the statistics. This feature increases the simultaneous significance level of the family of t-tests which may incorrectly lead to the rejection of null hypotheses. As a result, this approach allows for a robust analysis on the existence of the day-of-the-week effects, the economic conditions effects on returns and the interaction between both effects.
Daily return series from the main Spanish stock index, from 6 July 1993 to 30 December 2011, were used for the model estimation. Results suggest no evidence for an effect of the economic cycles on day-of-the-week returns. Additionally, results did not show any evidence for the existence of a day-of-the-week effects throughout the study period. However, results showed a moderately significant difference in returns between the first, second and the third economic sub period. This return differential is due to the negative extreme movements in returns occurred in the third sub period.
