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.

Are there “day-of-the-week” and “holiday” anomalies in the mexican stock market?

“…The anomaly disappeared (HD) The hypothesis that the DOW anomaly has recently vanished was rejected for these three indices. Such findings diverge from some reports in the literature regarding the disappearance of this calendar effect from the stock markets in other equity markets (Tadepalli & Jain, 2018;Zhang et al, 2017), and the DOW effect seems to be persistent in Mexico's Stock Exchange. In contrast, the hypothesis about the existence of the DOW effect in the returns of the IPC MidCap was consistently rejected, since according to the Kruskal-Wallis test.…”

“…The study concluded that the anomaly was present in all markets examined. Tadepalli & Jain (2018) employed ARIMAX modeling to examine the presence of the DOW effect in several indices of the Indian equity market and found a widespread existence of the DOW anomaly. Bahcivan & Karahan (2022) used a recently developed statistical method called Generalized Autoregressive Score (GAS) in combination with State-Space Modeling to overcome the intraday correlation dynamics due to non-synchronous trading and market noise to estimate intraday correlations in the Turkish equity market.…”

“…However, there is increasing evidence of the existence of market anomalies (Gayaker, Yalcin, & Berument, 2020;Plastun, Sibande, Gupta, & Wohar, 2020;Rossi, 2015). Among these anomalies are the so-called calendar (or seasonal 1 ) effects such as the Day-of-the-Week (DOW) Effect (Anwar, Okot, & Suhendra, 2021;Santillán Salgado, Fonseca Ramírez, & Nelson Romero, 2019;Tadepalli & Jain, 2018;Vogelaar, Pimenta, Lima, & Gaio, 2014;Yardımcı & Erdem, 2020;Zhang, Lai, & Lin, 2017) and the Holiday Effect (HE) (Caporale & Plastun, 2017;Dumitriu & Stefanescu, 2020;Eidinejad & Dahlem, 2021;Marques, 2014;Mazviona, Mah, & Choga, 2021). The DOW and HE anomalies studied in the context of the MSE are the subject of interest in this paper.…”

The Day-of-the-Week Effect and the Adaptive Market Hypothesis in Latin American Stock Markets

“…Recently, Zhang, Lai, & Lin (2017) examined this anomaly in the stock indices of 25 developed and emerging countries and concluded that it was present in all the indices. Tadepalli & Jain (2018) studied the DOW effect in several indices of the Indian equity market and found a widespread existence of such an anomaly. Winkelried & Iberico (2018) found the DOW effect in five of the six Latin American stock markets they examined.…”

The turn-of-the-month effect in Pakistani stock market

“…Globally, various international stock markets show the evidence for the presence of the "turn-of-the-montheffect" [11,20,25,36]. Practically, the straightforward purchasing of shares in the last few days of the month and then selling those again in the first three to four days of the new month refers to the "turn-of-the-montheffect" [6,14].…”