New York Stock Exchange (NYSE) : Day-of-the-week effect and bid-ask spreads

Abstract

In this project, we investigate the presence of the Day-of-the-Week (DOW) effect in transaction costs measured by various types of bid-ask spreads (BAS). The analysis of 2,270 companies listed on the New York Stock Exchange (NYSE) indicate that the DOW effect is only present for percentage BAS and not for the other three spreads. It is observed that the percentage BAS is higher on Mondays compared to Tuesdays, Wednesdays and Thursdays. However, the percentage BAS on Mondays is not significantly different from Fridays. In the second part of our study, a number of factors including market capitalization, stock price, number of quotes, trading volume and types of industry sectors were evaluated to determine if they affect the transaction costs. The evidence indicates that the number of quotes and trading volume are inversely related to all four types of transaction costs. We also find a significant negative relationship between the stock price and both percentage and time-weighted percentage BAS. We find that the technology sector is associated with higher transaction cost. Last but not least, our results in the last section present the absence of DOW effect in all three types of classifications by trading volume.