Exercise 1: The day of the week effect One of the calendar anomalies we discussed in class is the weekend effect, which refers to the surprisingly low (and in fact negative) average returns earned on Mondays relative to the other days of the week. The original study on which the graph on p. 23 of the notes on “Additional Evidence on Efficiency” is based used data on NYSE stocks for the period 1928-1982 (Donald B. Keim and Robert F. Stambaugh, 1984, “A Further Investigation of the Weekend Effect in Stock Returns,” Journal of Finance 39, pp. 819-835). In this exercise, you will update this analysis using returns on the S&P 500 index for the period January 3, 1950 to the present. You will learn how to obtain this type of data yourself from Yahoo! Finance. a. Go to the Yahoo! Finance website and download historical closing levels on the S&P 500 index from January 3, 1950 to the present. In the document you submit, please include a partial screen shot of the spreadsheet. Hint: Go to http://finance.yahoo.com/ and search ^GSPC. This will open a webpage that shows you the recent performance of the index, its current level, the 52-week range, etc. Towards the middle of the page, click on Historical Data, enter 1/3/1950 as the start date and 11/4/2016 as the end date, click Apply and then Download Data. This will give you a csv file, which you can open in Excel. Delete columns B through F, since you only need the date and the adjusted close. Finally, sort the observations from oldest to newest, so that the first observation is 1/3/1950, then 1/4/1950, etc. b. Compute daily returns on the index. In the document you submit, please include a partial screen shot of the spreadsheet showing the result and the equations used. Hint: the first return you will compute is the 1/4/1950 return which can be calculated as (1/4/1950 price – 1/3/1950 price) / (1/3/1950 price). c. For each date, determine the day of the week. In the document you submit, please include a partial screen shot of the spreadsheet showing the result and the equations used. Hint: use the Excel function WEEKDAY. Google it if you need help with it. Note that =WEEKDAY(cell_reference)-1 will produce a 1 for Monday, 2 for Tuesday, etc. d. Compute the average return on the index separately for each day of the week. In the document you submit, please explain the approach you followed, and include a partial screen shot of the spreadsheet showing the result and the equations used. Hint: Think about a logical way to set this up in Excel so that you do not need to do any calculations by hand, since you have thousands of observations. There are several ways of doing this. For example, using IF statements (Google this too if needed) you can 1 create dummy variables that equal 1 on Monday and 0 on all other days. You can do this for each weekday. Doing this will allow you to create 5 columns, one per day, where in each column the entry is the return on the corresponding day and zero otherwise. e. Present the result in a graph similar to the one on p. 23 of the notes. (Please look at the bottom of this assignment to find what page no. 23 looks like) f. Is the pattern you find similar to what was found for the NYSE over the period 1928-1982? Exercise 2: Event study methodology Announcements of upcoming stock splits tend to be viewed as positive news. The spreadsheet splits.xlsx has daily returns for 100 firms that announced stock splits as well as the market returns on those announcement days. a. Compute the average abnormal announcement return. b. Is the average abnormal return significantly different from zero? Example: Page No 23 for Question No 1 look like this: 2

stock id 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 Ri 0,038975 0,021532 -0,0142 0,057068 0,031509 0,017145 0,047209 0,020947 0,002691 0,02355 0,011054 0,034938 -0,00624 0,014784 0,021303 0,003918 0,01752 0,017849 0,022761 0,020847 0,029755 0,00514 0,018496 0,006605 0,028167 0,03144 0,000875 0,029821 -0,02075 0,005957 0,0408 0,008868 0,048236 0,014995 0,033757 0,016929 0,008206 0,009072 0,034386 0,002575 0,019079 0,035725 0,016446 0,002174 0,006833 0,038292 Rm 0,003117 0,00797 -0,0008 0,000861 -0,0004 -0,00782 -0,00237 -0,00143 0,008296 -0,00561 -0,00108 -0,00026 -0,00021 0,000853 0,004134 0,005806 0,000292 -0,00371 0,001232 0,000378 -0,00217 -0,00104 0,002865 0,002312 0,005703 0,003354 0,006711 0,002855 -0,00354 0,004404 -0,00491 0,000343 -0,00202 0,006261 0,000254 0,000715 0,003479 -0,00058 0,000143 0,003911 -0,00046 0,001634 0,005721 0,00464 0,004276 -0,00032 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 0,004959 0,016167 0,02255 0,018211 0,028428 0,017868 0,019868 0,031068 0,023924 0,040613 0,036636 -0,0015 0,037563 0,031908 0,030073 0,00641 0,003666 0,015246 0,011522 0,008851 0,000555 0,041985 0,012366 0,026751 0,056457 0,012769 0,028055 0,01571 -0,00993 0,048512 0,030005 0,036881 0,014668 0,037977 0,001262 0,009034 0,028376 0,012389 0,03709 0,011627 0,034783 0,043811 0,017213 0,002209 0,014416 0,032278 0,014101 -0,00089 0,001643 -0,00455 -0,00383 0,003123 0,004556 0,006428 0,002479 0,001195 -0,00552 -0,00018 0,003159 -0,00361 -0,00189 0,000591 0,000826 0,004852 -5,4E-05 5,76E-05 -0,00251 -0,00064 0,000288 -0,00621 0,001631 0,002158 -0,00279 0,002573 0,005536 0,00344 0,00797 -0,00729 -0,00207 -0,00612 -0,0038 -0,00905 -0,00196 7,26E-05 0,000744 0,000138 0,000475 0,000693 0,00094 -0,0012 0,00035 0,001958 -0,00129 -0,00068 94 95 96 97 98 99 100 0,018445 0,002515 0,005307 -0,00077 0,009612 0,005829 0,002735 -0,00751 0,025959 -0,00365 0,016982 0,001629 0,037887 -0,00355