Calendar Anomalies in Indian Stock Markets

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The Presence of Seasonal, Calendar, Weather and other Anomalies: A Study of Indian Stock Market

Stock market efficiency is a crucial concept for studying any capital market. There is extensive empirical evidence of market efficiency in developed markets like the US, the UK and Japan; yet, little attention is paid to the emerging equity markets like India, China, Tunisia etc. Thus, a research on the characteristics and dynamics of such stock markets can yield interesting results. Also, the trend of investments is accelerating in these markets as a result of regulatory reforms and removal of other barriers for the international equity investments. For the purpose of this study, I have chosen the Indian stock market represented by the Bombay Stock Exchange (BSE) over a period of 10 years ranging from 1998 to 2008. The primary aim of this study is to evaluate the effect and validity of such anomalies on the Indian stock market. It will also look at how long lasting is the effect of such anomalies and whether all or some of them apply to the Indian stock market.

The term market efficiency is used to explain the relationship between information and share prices in the capital market literature. Fama (1970) classified market efficiency in three categories namely, weak form, semi-strong form, and strong form. Traditionally, analysts and investors assume stock market efficiency because in a competitive market, prices reflect all available information. A market is considered efficient in the weak form if stock price changes cannot be predicted based on past returns. In statistical terms, this means that changes in stock returns are independent and random. But in practicality, this is not the case as the interaction of noise traders and rational traders creates disturbances in the stock markets along with many other anomalies. Empirical studies have developed a wide range of anomalies relating to seasonality in stock returns,...
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