With Mahavir Jayanti and Good Friday coming up this week, the trading week will be truncated to three trading days. There’s a close to random chance that Sensex will be mildly positive
How has Sensex performance been during a truncated week? A truncated week is when there would be less than the normal five trading days in the week. Sometimes there would be one, two, three or four trading holiday(s) in between, which make the week shorter. With Mahavir Jayanti and Good Friday coming up on 5 April 2012 and 6 April 2012 respectively, the Sensex will have only three trading days. We find out how it might perform. For this purpose 5096 data points, over 21 years, were collected, condensed and analysed.
The Moneylife research team found out that of all the truncated weeks over the last 21 years, the Sensex has been positive 53% of the time—almost a random outcome especially when you consider the size of gains. The average returns of all the truncated weeks was a paltry 0.25%, while the maximum and minimum returns recorded was 16.88% and minus 15.9% respectively.
Similarly, for the last 10 years, there were only 109 occurrences where we observed truncated weeks, out of which 64 of them ended up giving higher returns to investors. In other words a 59% probability which is better than a coin toss. It is interesting to note that the average return is 0.32%, which is somewhat similar to 21-year time frame.
Likewise, for the last five years, the probability is lower, at 54%. In this case, the average return is flat, at 0.02%.
The variance between the returns in all the three time periods were 0.16% (in case of 21 years), 0.14% (in case of 10 years) and 0.21% (in case of five years), indicating that the returns aren’t spread out too far in between and tend to be clustered close to average returns of 0%.
If these numbers are anything to go by, then one could expect minimal returns and chances of positive returns not too great.
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