Calendar anomaly: unique evidence from the Indian stock market

Harshita Harshita, Shveta Singh and Surendra S. Yadav

Journal of Advances in Management Research, 2018, vol. 15, issue 1, 87-108

Abstract: Purpose - The purpose of this paper is to ascertain the monthly seasonality in the Indian stock market after taking into consideration the market features of leptokurtosis, volatility clustering and the leverage effect. Design/methodology/approach - Augmented Dickey-Fuller, Phillips-Perron and Kwaitkowski-Phillips-Schmidt-Shin tests are deployed to check stationarity of the series. Autocorrelation function, partial autocorrelation function and Ljung-Box statistics are employed to check the applicability of volatility models. An exponential generalized auto regressive conditionally heteroskedastic model is deployed to test the seasonality, where the conditional mean equation is a switching model with dummy variables for each month of the year. Findings - Though the financial year in India stretches from April to March, the stock market exhibits a November effect (returns in November are the highest). Cultural factors, misattribution bias and liquidity hypothesis seem to explain the phenomenon. Research limitations/implications - The paper endeavors to provide a review of possible explanations behind month-of-the-year effect documented in literature in the past four decades. Further, the unique evidence from the Indian stock market supports the argument in the literature that monthly seasonality, by nature, may not be a consistent/robust phenomenon. Therefore, it needs to be examined from time to time. Originality/value - As the seasonality in the stock market and resultant anomalies are dynamic phenomena, the paper reports the current seasonality/anomalies prevalent in the Indian market. This would aid investors in designing short-term investment portfolios (based on anomalies present) in order to earn abnormal returns.

Keywords: Market efficiency; Indian stock market; Calendar anomaly; November effect; Volatility models (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jamrpp:jamr-11-2016-0096

DOI: 10.1108/JAMR-11-2016-0096

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