Journal Press India^®

Author Details ( * ) denotes Corresponding author

Theoretical and technological advances in Behavioural Finance over the last decades seem to have shifted the paradigm away from the Efficient Market Hypothesis proposed by Fama in 1970s.  The hypothesis implied that securities are always priced efficiently since all the relevant information is fully reflected in their prices. However, this normative statement comes under heavy scrutiny with the existence of seasonality in stock returns. This paper investigates seasonality in the Indian stock markets through the existence of calendar effects. Employing time series analysis on data from January 1999 to December 2015, the presence of calendar effects is studied in three BSE indices-Sensex, BSE200 and BSE 500 using a dummy variable regression model in both the daily returns (using EGARCH modelling process) and monthly returns (using OLS estimation procedure). It is found that the while the SENSEX index does not show any significant calendar effect, seasonality does manifest in the larger BSE 200 and BSE 500 indices in form of both days-of-the-week effect and month-of-the-year effect, thereby suggesting that Indian stock markets do not show informational efficiency even in the weak form. The study concludes that the observed patterns are useful in timing the deals by exploiting the observed irregularities in the Indian stock market returns. ​

Keywords

Efficient Market Hypothesis; Seasonality; Calendar effects; Market efficiency; Indian stock markets

1. Connolly, R. (1989). An examination of the robustness of the weekend effect. Journal of Financial and Quantitative Analysis, 24(2), 133-169.
2. Connolly, R. (1991). A posterior odds analysis of the weekend effect. Journal of Econometrics, 49, 51-104.
3. Borges, M. R. (2009). Calendar effects in stock markets: Critique of previous methodologies and recent evidence in European countries. School of Economics and Management, Technical University of Lisbon, Working Paper no. WP 37/2009/DE/ UECE.
4. Brown, P. D. (1983). Stock return seasonalities and the tax-loss-selling-hypothesis: Analysis of the arguments and Australian evidence. Journal of Financial Economics, 12, 105-127.
5. Cross, F. (1973). The behavior of stock prices on Fridays and Mondays. Financial Analysts Journal, 24(6), 67-69.
6. D, B. (1992). Day of the week patterns of the Indian stock market. Decision, 19(2), 57-64.
7. French K. (1980). Stock returns and the weekend effect. Journal of Financial Economics, 8(1), 55-70.
8. Gultekin, M. N. (1983). Stock market seasonality: International evidence. Journal of Financial Economics, 12(4), 469-481.
9. Fama, E.F. (1965). The behavior of stock market prices. Journal of Business, 38(1), 34-105.
10. Fama, E.F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
11. Jaffe, J. A. (1985). The week-end effect in stock returns: the international evidence. Journal of Finance, 40(2), 433-454.
12. Kaur, H. (2004). Time varying volatility in the Indian stock market. Vikalpa, 29(4), 25-41.
13. Patel, N.R. (2012). Day of the week effect in Asian stock markets. Journal of Arts, Science and Commerce, 3(3), 60-10.
14. Patel, J. (2008). Calendar effects in the Indian stock market. International Business and Economic Research Journal, 7(3), 61-69.
15. Purohit, H., & Tyagi, P. (2015). Calendar effects in stock markets of India and China: An empirical analysis of month-of-the-year-effect. Business Analyst, 36(1), 69-81.
16. Reinganum, M. (1983). The anomalous stock market behavior of small firms in January empirical test for year-end tax effect. Journal of Financial Economics, 12, 89-104.
17. Rozeff, M. S. (1976). Capital market seasonality:The case of stock returns. Journal of Financial Economics, 3, 376-402.
18. Sah, A. N. (2008). Stock Market Seasonality: A Study of the Indian Stock Market. Retrieved from https://www.nseindia.com/content/research/res_paper_final228.pdf
19. Sarma, S. N. (2004). Stock market seasonality in an emerging market. Vikalpa, 29(3), 35-41.
20. Wachtel, S. (1942). Certain observation on seasonal movement in stock prices. Journal of Business, 15, 184-193.
21. Yakob, N. A. (2005). Seasonality in the Asia Pacific stock markets. Journal of Asset Management, 6(4), 298-318.