TRANSACTION COSTS AND DAY‐OF‐THE‐WEEK EFFECTS IN THE OTC/NASDAQ EQUITY MARKET

Abstract

Abstract A potential explanation is examined here for the observed day‐of‐the‐week effect in equity returns—systematic daily patterns in percentage bid‐ask spreads. Using OTC/NASDAQ data over 1973–1985, strong return day‐of‐the‐week effects are documented while mean dealer percentage spreads are essentially unchanged over the week. These results provide evidence that systematic percentage spread changes do not contribute to the observed return anomaly.