Calendar Effects in the Pakistani Stock Market

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International Review of Business Research Papers Vol. 5 No. 1 January 2009, Pp. 389- 404

Calendar Effects in Pakistani Stock Market
Shahid Ali* And Muhammad Akbar**
The paper investigates calendar anomalies in the Pakistani stock market by taking a data of stock returns of fifteen years from November 1991 to October 2006. The existence of calendar anomalies could endanger the assumption of Efficient Market Hypothesis. Using one Factor ANOVA the main hypotheses about equality in returns on daily, weekly and monthly basis are tested using F-test and are found to be insignificant, Autoregressive Integrated Moving Averages ARIMA and Ordinary Least Squares OLS are also extended as an alternate procedure to look for any above average returns reaped by market players. An AR1 model is fitted on the data along with a simple linear regression model to test the slopes. Before using an estimated equation for our stated hypotheses an examination of residuals is made for evidence of serial correlation using the Durbin-Watson statistic. Anderson-Darling test of normality is applied as a prerequisite before computing interval estimates and using the one factor ANOVA. The study concludes that there are no weekly effects or monthly effects in stock returns in Pakistani equity market however the market is inefficient in the short run and there is existence of daily effects where the fourth and fifty days of a week show abnormal returns using autoregressive modeling.

1. Introduction Calendar effects have remained as an area of growing interest for researchers in the last three decades as the presence of the phenomena has been evidenced even in the most developed capital markets of the world. Calendar effects are the stock price anomalies that are attributed to calendar. Day-of-the- week, the end of the month, the month of the year and holidays’ effects are the most prominent of these stock price anomalies. According to the theory of Efficient Market Hypothesis stock prices cannot be precisely predicted. It is assumed that the market participants are rational and stock prices are determined by demand and supply. If a stock price is to be predicted for the next day, the best prediction will be the market price prevailing today adjusted with a drift term. In other words, there cannot be any trends, either seasonal or calendar, in stock prices. If there are any seasonal or calendar effects present in the market that will allow market players to make abnormal profits. This negates the weak form of market efficiency that states that stock prices are independent of past information. ___________ Shahid Ali Principal Author is Assistant Professor at Institute of Management Sciences, Peshawar Pakistan Email: ** *

Muhammad Akbar is working as a Professor at Bahria University Islamabad, Pakistan. Email:

Shahid & Akbar


There is ample research conducted around the world supporting the ‘January effect’, ‘Day of the week effect’ and amongst some recent works an investigation is made in calendar effects like the ‘Ramadan effect’ in a religious context etc. Seasonal effects are explored in many contemporary studies; however there studies derive a conceptual difference between calendar and seasonal effects. Pakistan is an emerging market and an investigation in calendar anomalies could prove both interesting and insightful. In this paper our purpose is to investigate the daily, weekly and monthly calendar effects in Pakistani stock market using daily, weekly and monthly returns calculated from the data of KSE Karachi Stock Exchange 100 index. Assuming Pakistan an emerging market, the formal expectation would be that the market is inefficient. The analysis is going to be based on the market index data from 1991 to 2006. The said period has been overall a mixed period for Pakistani equity market, where the market has been subject to a number of anomalies, there have been policy implications...
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