THE IMPACT OF SETTLEMENT PROCEDURES ON DAY-OF-THE-WEEK EFFECTS: EVIDENCE FROM THE KUALA LUMPUR STOCK EXCHANGE A.D. Clare, M.S.B. Ibrahim and S.H. Thomas* INTRODUCTION Extensive evidence exists of anomalies in the behaviour of stockmarket returns, particularly for the US market. For example, Banz (1981) found that small firms tended to outperform large firms, identifying the firm size effect, while Keim (1983) found that the additional returns available from small firms was available predominantly in the month of January. A further set of studies have documented the existence of a weekend effect (see French, 1980; and Jaffe and Westerfield, 1985), where stock returns tend to be depressed between Friday's close and Monday's opening prices. With the growing international diversification of bond and equity portfolios, particularly in the direction of emerging markets, it is becoming increasingly important for investment managers to understand empirical regularities which may exist in such markets. Some recent and comprehensive studies of the behaviour of emerging market stock return data have focused on the degree of integration of emerging markets with more developed markets (see Bekaert and Harvey, 1995; or Harvey, 1995), and the statistical properties of stock market returns (again see Harvey, 1995). With respect to the Malaysian stock market both Bekaert and Harvey (1995) and Harvey (1995) find evidence to suggest that while many emerging markets are poorly integrated with developed capital markets, the Malaysian market is reasonably well integrated. With respect to the statistical properties of Malaysian stock returns Harvey (1995) finds that we can accept the null hypothesis of normally distributed returns for the developed stock markets in the study (Japan, the UK and the USA) this null can be strongly rejected for most of the emerging market analysed with the exception of the Indonesian, Malaysian and Taiwanese markets where the null is also accepted. Journal of Business Finance & Accounting, 25(3) & (4), April/May 1998, 0306-686X ß Blackwell Publishers Ltd. 1998, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA. 401 * The authors are respectively from the ISMA Centre, University of Reading, the Department of Economics, Brunel University and the Department of Management, University of Southampton. They are grateful to Denise Foreman for help in the preparation of this paper, and to an anonymous referee for some very useful comments on an earlier draft of this paper. (Paper received January 1997, revised and accepted July 1997) Address for correspondence: S.H. Thomas, Department of Management, University of Southampton, Highfield, Southampton SO17 1BJ, UK. e-mail: a.d.clare@rdg.ac.uk