An Enquiry into the Persistence of Turn-of-the-Month Effect on Stock Markets in India: Insights and Perspectives on a Seasonal Anomaly

Abstract

Asset pricing in capital markets is a strikingly vibrant area of academic research and is considered as an indicator to evaluate the efficiency of stock markets. Though the explanation for the seasonal behavior of capital markets was attempted by various market models, several anomalies were observed historically. Calendar anomalies that belong to the specific class of seasonal anomalies provided abnormal returns in the global stock markets at regular intervals within and across various calendar years. This article documents the study on one such anomaly—namely, the turn-of-the-month effect in the context of Indian stock indices. In this pursuit, exhaustive research has been carried out considering all the broad-market and sectoral indices of two major stock exchanges, namely, National Stock Exchange and the Bombay Stock Exchange. The study used the ARIMAX methodology with dummy exogenous variables (to represent the turn-of-the-month days) and presented comprehensive findings and learnings. Besides, this article attempts to analyze the changes in the strength and significance of the anomaly in progression with various stock market reforms in both the broad-market and sectoral indices to provide new insights into the efficiency of Indian stock market exchanges.

Keywords

Calendar anomalies turn-of-the-month effect ARIMAX methodology sectoral indices broad-market indices

Get full access to this article

View all access options for this article.

References

Anggraeni

Vinarti

R. A.

Kurniawati

Y. D.

(2015). Performance comparisons between Arima and Arimax method in Moslem kids clothes demand forecasting: Case study. Procedia Computer Science , 72(1), 630–637.

Ariel

R. A.

(1987). A monthly effect in stock returns. Journal of Financial Economics , 18, 161–174.

Cadsby

C. B.

Ratner

(1992). Turn-of-month and pre-holiday effects on stock returns: Some international evidence. Journal of Banking and Finance , 16, 497–509.

Chaker

M. N.

Sabah.

(2018). Testing the weak form of efficiency of the stock markets in Gulf Cooperation Council countries. Journal for Global Business Advancement , 11(3), 376–392.

Gao

Kling

(2005). Calendar effects in Chinese stock market. Annals of Economics and Finance , 6(6), 75–88.

Hensel

C. R.

Ziemba

W. T.

(1996). Investment results from exploiting turn-of-the-month effects. Journal of Portfolio Management , 22(3), 17–23.

Jacobs

B. I.

Levy

K. N.

(1988). Calendar anomalies: abnormal returns at calendar turning points. Financial Analysts Journal , 44(6), 28–39.

Kayacetin

Lekpek

(2016). Turn-of-the-month effect: New evidence from an emerging stock market. Finance Research Letters , 18, 142–157.

Kunkel

R. A.

Compton

W. S.

Beyer

(2003). The turn-of-the month effect still lives: The international evidence, International Review of Financial Analysis , 12(2), 207–221.

10.

Lakonishok

Smidt

(1988). Are seasonal anomalies real? A ninety-year perspective. The Review of Financial Studies , 1(4), 403–425.

11.

Mcconnell

J. J.

(2008). Equity returns at the turn of the month. Financial Analysts Journal , 64(2), 49–64.

12.

Ogden

J. P.

(1990). Turn-of-month evaluations of liquid profits and stock returns: A common explanation for the monthly and January effects. The Journal of Finance , 45(4), 1259–1272.

13.

Pettengill

G. N.

Jordan

B. D.

(1988). A comprehensive examination of volume effects and seasonality in daily security returns. The Journal of Financial Research , 11(1), 57–70.

14.

Roll

(1983). Vas Ist Das? The turn-of-the-year effect and the return premia of small firms. The Journal of Portfolio Management , 9, 18–28.

15.

Tadepalli

M. S.

Jain. R.

(2018a). Persistence of calendar anomalies: Insights and perspectives from literature. American Journal of Business , 33(1/2), 18–60.

16.

Tadepalli

M. S.

Jain. R.

(2018b). The day-of-the-week (DOW) effect on stock markets in India: Insights and perspectives on a seasonal anomaly. New Zealand Journal of Applied Business Research , 16(2), 41–70.

17.

Tadepalli

M. S.

Jain. R.

(2019). persistence of calendar anomalies: insights and perspectives on month of the year effect in Indian stock markets. Journal of Advanced Research in Dynamical and Control Systems , 11(2), 1785–1801.

18.

Thaler

R. H.

(1987). Anomalies: Seasonal movements in security prices II: Weekend, holiday, turn of the month, and intraday effects. The Journal of Economic Perspectives , 1(1), 169–177.