Day of the week effect in international portfolio diversification: January vs non-January

This paper examines the day-of-the-week effect in international portfolio diversification and compares the results between January and non-January months. Using daily data of six stock indices, empirical results support that a day-of-the-week effect exists, not only in the mean return and variance, but also in correlations between stock markets. On Monday, the average correlation is largest with a negative mean return and the largest volatility. A Rogalski effect exists on mean return and on volatility, respectively, in two and four markets. However, the effect disappears in diversified portfolios suggesting that the effect is market-specific and diversifiable. The seasonal pattern on correlations between stock markets differs across January and non-January months with the average correlation largest on Thursday and Monday, respectively. Our results provide new empirical evidence on the day-of-the-week effect on international stock returns.