Spillover effects in the financial year cycle for Indian markets

Parul Bhatia

Asian Journal of Accounting Research, 2020, vol. 6, issue 1, 38-54

Abstract: Purpose - The stock market anomalies have been studied across the globe with intermingled results for individual markets. The present study has investigated the financial year effect for Indian stock markets by testing month-of-the-year-effect anomalies. Design/methodology/approach - The oldest stock exchange's index returns (Bombay Stock Exchange [BSE]) have been tested using ordinary least squares (OLS) and autoregressive conditional heteroskedasticity in mean (ARCH-M) models with Student'stand Student'st-fixed distributions for the period between 1991 and 2019. The Glosten, Jagannathan and Runkle-generalised autoregressive conditional heteroskedasticity (GJR-GARCH) model has been further used to find out existence of the leverage effect in returns. Findings - The findings indicated no evidence for anomalies in the Indian stock market which may be used by investors for making unusual returns. However, the volatility in returns has shown weak but significant results due to the financial year impact. The leverage effect has not been found in the financial year cycle change over. The Indian market may be said to be moving towards a state of efficiency, leaving no scope for investors to gauge bizarre profits. Research limitations/implications - The study has incorporated the Indian context for testing anomalies during the start and end of the financial year cycle. The model may be extended further to developed and developing nations’ markets for testing efficiency in their stock markets during the same cycle. Originality/value - The paper may be the first of its kind to test for the financial year effect on standalone basis for Indian markets. The paper also adds to the existing literature on testing events’ effect.

Keywords: OLS; ARCH-M; GJR-GARCH; Sensex; April; March; Spillover effect; Financial year; Volatility (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajarpp:ajar-03-2020-0019

DOI: 10.1108/AJAR-03-2020-0019

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