Preview

Calendar Effects in the Pakistani Stock Market

Better Essays
Open Document
Open Document
5703 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Calendar Effects in the Pakistani Stock Market
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



References: Alagidede, P. & Panagiotidis, T. 2006, . Calendar anomalies in the Ghana stock exchange, Working Paper 2006-13, Discussion Paper Series, Loughboorough University, Department of Economics. Anderson, L. R., Gerlach, J. L. & DiTraglia, F. J. 2005. Yes, Wall Street, there is January Effect! Evidence from laboratory auctions, Working Paper Number 15, 2005, College of William and Mary, Department of Economics, Williamsburg. Balaban, E. & Bulu, M. 1996, . Is there a semi-monthly effect in the Turkish 402 Shahid & Akbar 403 stock market. Discussion Paper Number 9606, The Central Bank of The Republic of Turkey. Berg, L. 2003. Deterministic seasonal volatility in a small and integrated stock market: the case of Sweden, Finnish Economic Papers, 16, 61-71. Board, J.L.G. & Sutcliffe, C.M.S. 1988. The weekend effect in the UK stock market returns, Journal of Business Finance & Accounting, 15, 199-213. Coutts, A. J. 1997. Discussion of microstructure and seasonality in the UK equity market, Journal of Business Finance & Accounting, 24, 1205-1215. Fama, E. 1970. Efficient capital markets: A review of theory and empirical work, Journal of Finance, 25, 383-417. Fama, E. 1965. The behaviour of stock market prices, Journal of Business, 38, 34-105. Galai, D. & Kedar-Levy, H. 2005. Day-of-the week effect in high moments, Financial Markets, Institutions and Instruments, 14, 169-186. Gao, L. & Kling, G. 2005. Calendar effects in Chinese stock market, Annals of Economics and Finance, 6, 75-88. Gu, Y.A. & Finnerty, J. 2002. The evolution of market efficiency: 103 years daily data of the Dow, Review of Quantitative Finance and Accounting, Vol. 18, 2002. pp 219-237 Gultekin, M. N. & Gultekin, B.N. 1983. Stock market Seasonality: International Evidence, Journal of Financial Economics, 12, 469-481. Hansen, R. & Lunde, A. 2003,February. Testing the significance of calender effects, Working Paper Series No 143. Centre for Analytical Finance, University of Aarhus, Aarhus Business School. Hussain, F. 1999 The day of the week effect in the Pakistani equity market: An investigation, The Lahore Journal of Economics, Vol. 5, Issue 1, pp. 93-98 Jaffe, J. F. & Westerfield, R. 1985. The Week-end effect in common stock returns: The International Evidence, Journal of Finance, 40, 433-454. Jarret, E. J. & Kyper, E. 2005. Daily return, capital market efficiency and predicting stock market returns, Management Research News, 28, 34-47. Marquering, W. 2002. Seasonal predictability of stock market returns, Tijdschrift voor Economie en Management, 47, 557-576. Mehdian, S. & Perry, M. 2001. The reversal of the Monday effect: New evidence form US equity markets, Journal of Business Finance & Accounting, 28, 1043-1065. 403 Shahid & Akbar 404 Nishat, M. & Mustafa, K. 2002 Anomalies in Karachi Stock Market: Day of the week effect, The Bangladesh Development Studies, Vol. XXVIII, September 2002, No. 3 Pandey, I. M. 2002. Seasonality of Monthly stock returns: The Indian evidence, Journal of Applied Finance, 8, 53-67. . Pearce, D. K. 1995. The robustness of calendar anomalies in daily stock returns, Journal of Economics and Finance, Fall, 69-80. Priestley, R. 1997. Seasonality, stock returns and the macro economy, The Economic Journal, 107, 1742-1750. Sun, Q. & Tong, W. 2002. Another new look at the Monday effect, Journal of Business Finance & Accounting, 29, 1123-1147. Van Der Sar, N. 2003. Calendar effects on the Amsterdam stock exchange, De Economist, 151, 271–292. 404

You May Also Find These Documents Helpful

  • Powerful Essays

    Al-Jarrah, M.I., Khamees, B.A. and Qteishat, I.H. (2011). The "Turn of the Month Anomaly" in Amman Stock Exchange: Evidence and Implications. Journal of Money, Investment and Banking, Issue 21, 5-11. Ansari, (2011). Testing Weak Form Stock Market Efficiency on Bombay Stock Exchange of India Tenth International Conference on Operations and Quantitative Management. Awad, I. and Daraghma, Z. (2009). Testing the Weak-Form Efficiency of the Palestinian Securities Market. International Research Journal of Finance and Economics, Issue 32, 7-17. Bashir, T., Ilyas, M. and Furrukh, A. (2011). Testing the Weak-Form Efficiency of Pakistani Stock Markets-An Empirical Study in Banking Sector. European Journal of Economics, Finance and Administrative Sciences, Issue 31, 160-175. Davis, Mark and Etheridge, Alison, (2006). Louis Bachelier 's Theory of Speculation: The Origins of Modern Finance, New Jersey: Princeton University Press, Dholakia. (2009). Stock Market: The Barometer of Economy 's Health. Stock markets, BlogSpot Fama E. (1965). The Behavior of Stock-Market Prices. The Journal of Business, 38(1), 34-105. Gersdorff, N. von, and Bacon, F. (2009). U.S. Mergers and acquisitions: a test of market efficiency. Journal of Finance and Accountancy, 1(8), 1-8. Hamid, K., Suleman, M.T., Shah, S.Z.A. and Akash, R.S.I. (2010). Testing the Weak Form of Efficient Market Hypothesis: Empirical Evidence from Asia-Pacific Markets. International Research Journal of Finance and Economics, Issue 58, 121-133. Haque, A. Liu, H-C and Fakhar-Un-Nisaet. (2011). Testing the Weak Form Efficiency of Pakistani Stock Market-2000 to 2010. International Journal of Economics and Finance, 1(4), 153-162. Hassan, K.M. Al-Sultan, W.S. and Al-Saleem, J.A. (2003). Stock Market Efficiency in the Gulf Cooperation Council Countries (GCC): The Case of Kuwait Stock Exchange. Scientific Journal of Administrative Development, 1(1). 1-21. Worthington, A.C. and Higgs, H. (2003). Weak-form Market Efficiency in European Emerging and Developed Stock Markets. School of Economics and Finance Discussion Papers and Working Papers Series 159, School of Economics and Finance, Queensland University of Technology, Brisbane, Australia. Hudson, R., Dempsey, M. and Keasey, K. (1996). A Note on the Weak Form Efficiency of Capital Markets: An Application of Simple Technical Trading Rules to UK Stock Prices– 1935 to 1994. Journal of banking and finance, 20(6), 1121-1132. Khan, A.Q., Sana, I. and Mehtab, M. (2011). Testing Weak Form Market Efficiency of Indian Capital Market : A case of National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). African Journal of Marketing Management, 3(6), 115-127. Levin J, and Fox A.J. (1994), “Elementary Statistics in Social Research (6th edition). New York: Harper Collins College Publishers.…

    • 4702 Words
    • 19 Pages
    Powerful Essays
  • Powerful Essays

    Market Efficiency, Time-Varying Volatility and Equity Returns in Bangladesh Stock Market. Available in “http://www.uoit.ca/sas/Corporate%20Finance/mktefficiencybangla.pdf” (access on 10 August, 2010).…

    • 4965 Words
    • 20 Pages
    Powerful Essays
  • Powerful Essays

    Fii's

    • 11929 Words
    • 48 Pages

    Arshanapalli Bala and Kulkarni Mukund S. (1997) : “Impact of U.S. stock market on Indian stock markets”, Journal: International Journal of market fluctuations in stock market, Vol: 11. Publisher: MCB UP Ltd.…

    • 11929 Words
    • 48 Pages
    Powerful Essays
  • Good Essays

    In other words, common movements in expected returns do exist and can be predicted. The study conducted by Keim and Sambaugh covered the period beginning from 1927 until 1978 in examining the predictability of risk premiums in terms of the sensitivity of each of the variables to the asset prices and the seasonality of the risk premium. The results of the study depict that the stocks of small market capitalization companies and low grade bonds are more sensitive to asset prices in the month of January as compared to other months of the year, thereby showing the seasonal patterns. Therefore, it is likely to predict that both stocks and bonds tend to have significantly higher returns in the first month of the year.…

    • 1289 Words
    • 6 Pages
    Good Essays
  • Good Essays

    This paper we prepared by Werner F. De B, and Richard T in 1985 in the Journal of Finance. The paper investigates the reaction on stock prices after the announcement of related news. Specifically, the paper aims at finding whether the stock overreaction to such news is predictive or not. Using the empirical test, the paper was preformed by obtaining monthly return for 85 consecutives periods. The findings of this paper are: first, the overreaction effect is larger for losers’’ firms than winners, knowing that such effect is asymmetric. Second, most firms realize excess return on January, “seasonality effect”, as well the announcements’ periods for most firms. Lastly, the overreaction effect happens at the second and third testing periods.…

    • 916 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Assignment 1 Answers

    • 1037 Words
    • 5 Pages

    a. Calendar effects are viewed as cyclical anomalies in returns, where the cyclical patterns in data can be ascribed to change in volume and activity…

    • 1037 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    gantt chart

    • 1128 Words
    • 5 Pages

    The phenomena of calendar effects in stock markets seem to be a center of curiosity for many researchers across the world. Following many studies about the significance of calendar anomalies, testing the presence of Monday effect and January effect appears to be an area of interest.…

    • 1128 Words
    • 5 Pages
    Powerful Essays
  • Powerful Essays

    The objective of this paper is to examine the existence of day of week effect in Indian stock market. Daily closing prices of S&P CNX Nifty index have been analyzed over fifteen years period commencing from January 1994 to December 2008. A set of parametric and non parametric tests has been used to test the equality of mean returns and standard deviations of the returns. The mean returns on Monday and Tuesday are negative while on Wednesday these are highly positive. Also, the impact of introduction of rolling settlement on the stock returns is observed. The results show that before rolling settlement came in 2001, Tuesday was showing highly negative returns and Wednesday highly positive. But after the introduction of rolling settlement, the seasonality in the distribution of the mean returns across different days of the week ceased to appear. Thus the markets have become more efficient over a period of time.…

    • 3930 Words
    • 16 Pages
    Powerful Essays
  • Powerful Essays

    References: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. Billio M. and Pelizzon L., 2003, “Volatility and Shocks Spillover before and after EMU in European Stock Markets”, Journal of Multinational Financial Management, 13, pp. 323-340. Brown S. and Warner J., 1980, “Measuring security price performance”, Journal of Financial Economics, 8, pp. 205-258. Corrado C.J., 1989, “A nonparametric test for abnormal security-price performance in event studies”, Journal of Financial Economics, 23, pp. 385-395. Cowan A.R., 1992, “Nonparametric event study tests”, Review of Quantitative Finance and Accounting, 2, pp. 343-358. Fama E.F., Fisher L., Jensen M., and Roll R., 1969, “The adjustment of stock prices to new information,” International Economic Review, 10, pp. 1-21. Fleming J., Kirby C., and Ostdiek B., 1998, “Information and volatility linkages in the stock, bond, and money markets”, Journal of Financial Economics, 49, pp. 111-137. Forbes K.J. and Rigobon R., 2002, “No contagion, only interdependence: measuring stock market comovements”, Journal of Finance, 52, pp. 2223-2261. Hamao Y., Masulis R.W., and Ng V., 1990, “Correlations in price changes and volatility across International Stock Markets”, Review of Financial Studies, 3, pp. 281-307. Hon M.T., Strauss J., and Yong S.K., 2004, “Contagion in financial markets after September 11: myth or reality?”, Journal of Financial Research, 27, pp. 95-114. Kanas A., 1998, “Volatility spillovers across equity markets: European evidence”, Applied Financial Economics, 8, pp. 245-256. Karolyi G.A., 2003, “Does international financial contagion really exist?”, International Finance, 6, pp. 179-199. King A.A. and Wadhwani S., 1990, “Transmission of volatility between stock markets”, Review of Financial Studies, 3, pp. 5-33. Longin F. and Solnik B., 1995, “Is the correlation in international equity returns constant: 1960-1990?”, Journal of International Money and Finance, 14, pp. 3-26. Moser T., “What is international financial contagion?”, International Finance, 6, pp. 157-178. Patell J., 1976, “Corporate forecasts of earnings per share and stock price behavior: Empirical Tests”, Journal of Accounting Research, 14, pp. 246-276. Roll R., 1989, “Price volatility, international market links, and their implications for regulatory policies”, Journal of Financial Services Research, 3, pp. 211-246. Rosecrance R. and Thompson P., 2003, “Trade, foreign investment, and security”, Annual Review of Political Science, 6, pp. 377-398. Yoon G., 2005, “Correlation coefficients, heteroskedasticity and contagion of financial crises”, The Manchester School, 73, pp. 92-100.…

    • 8580 Words
    • 35 Pages
    Powerful Essays
  • Powerful Essays

    A Study of Nse with Nasdaq

    • 3903 Words
    • 16 Pages

    This paper aims to do a comparative study on the National Stock Exchange (NSE) with NASDAQ. It aims at analysing the short-term as well as the long-term relationships between the Indian and American markets. The data being used is the previous three year’s data (Jan 1, 2009 to Dec 31, 2011). It analyses the various reasons which can cause volatility in the share markets and also take specific instances over the past 3 years data of both NSE and NASDAQ to demonstrate it.…

    • 3903 Words
    • 16 Pages
    Powerful Essays
  • Powerful Essays

    In this experiment I analyzed stock returns to determine if they follow a normal distribution. The result of this experiment could be extremely beneficial. If they do follow such a distribution one could develop a strategy based on historical performance and forecast future performance. To develop an accurate conclusion I used market indexes’, and individual stock’s, performance over different time periods. After this analysis I have concluded that stock returns are not normal and therefore cannot be forecasted on the basis of…

    • 3215 Words
    • 13 Pages
    Powerful Essays
  • Good Essays

    The findings show that the day of the week effect exists in Malaysian market as they demonstrate negative mean return on Monday and high mean return on Friday. There are no existing theories which explain the day of the week effect in stock market. It is difficult to give an exact explanation why these kinds of patterns exist in security returns. However, some of the assumptions can be used in explaining this scenario.…

    • 418 Words
    • 2 Pages
    Good Essays
  • Best Essays

    2. Suliaman D. Mohammad, Adnan Hussain and Adnan Ali (2009) Impact of Macro Economic Variables on Stock Prices: Empirical Evidence in Case of KSE (Karachi Stock Exchange)…

    • 3153 Words
    • 13 Pages
    Best Essays
  • Powerful Essays

    123123123123

    • 5312 Words
    • 56 Pages

    [15] King, M., Sentana, E., and Wadhwani, S. 1994. Volatility and links between national stock markets.…

    • 5312 Words
    • 56 Pages
    Powerful Essays
  • Satisfactory Essays

    Population Analysis

    • 7049 Words
    • 29 Pages

    The charts and explanatory text in this section provide definitive, irrefutable evidence that market timing is often perfect to the day for periods covering many decades! This statement is equally correct when market time is measured in increments, and timing. These are very strong assertions, or to put it in the vernacular, this is pretty "scary stuff", but also very exciting! Nevertheless, as will be demonstrated, the Economics, the facts, cannot be ignored!…

    • 7049 Words
    • 29 Pages
    Satisfactory Essays