Seasonal and Day-of-the-Week Effects in Four Emerging Stock Markets

The “January effect” and the “weekend effect” have proven to be persistent anomalies in U.S. equity markets. The objective of this paper is to examine seasonal and daily patterns in equity returns of four emerging markets: Hong Kong, Singapore, Malaysia, and the Philippines. These markets are gaining importance with the globalization of business; therefore, it is necessary to examine the efficiency and functioning of these capital markets. Our analysis uses daily data for the 12 years from September 1, 1976, to June 30, 1988. The results support the existence of a seasonal pattern in these markets. Returns in the month of January are higher than any other month for all markets examined except the Philippines. A robust day-of-the-week effect is also found. These markets exhibit a weekend effect of their own in the form of low Monday returns. In addition, there exists a strong “Tuesday effect,” which may be related to the + 13 hour time difference between New York and these emerging markets.     

International shocks and growth in emerging markets

The paper provides evidence on the extent and channels of transmission of international shocks on the economic growth of emerging markets. Using a block dynamic factor model, the shocks are decomposed into four components; a general global component, an activity based component, a financial component and a commodity price component. Using a sample of 75 emerging markets over the period 1992–2009, the paper finds that the average effect of international shocks on emerging markets' growth over the entire sample period is negligible, which supports the classic view of isolated, de-coupled emerging markets. However, there is considerable variation both over time, over cross-section and across factors. When we split our sample by time period, we find greater effect of the international factors on the emerging markets' growth during 2002–2009 period. There is evidence which suggests that sensitivity to international shocks has increased over time and at the country level these sensitivities are more pronounced. Although the drivers of integration vary as does the sensitivity to alternative sources of shocks, we find that certain emerging markets have become considerably more integrated with the global economy than others. Overall, there is evidence of a significant impact on the economic growth of some emerging markets of the international shock caused by the global financial crisis.     

Revisiting calendar anomalies in Asian stock markets using a stochastic dominance approach

Extensive evidence on the prevalence of calendar effects suggests that there exist abnormal returns. Some recent studies, however, have concluded that calendar effects have largely disappeared. In spite of the non-normal nature of stock returns, most previous studies have employed the mean-variance criterion or CAPM statistics. These methods rely on the normality assumption and depend only on the first two moments to test for calendar effects. A limitation of these approaches is that they miss important information contained in the data such as higher moments. In this paper we use a stochastic dominance (SD) test to test for the existence of day-of-the-week and January effects. We use daily data for 1988–2002 for several Asian markets. Our empirical results support the existence of weekday and monthly seasonality effects in some Asian markets, but suggest that first-order SD for the January effect has largely disappeared.     

Entry and competition in banking

Economic theory suggests that, ceteris paribus, new entry of firms will increase rivalry in a market. This study analyzes 184 banking markets to determine whether net market entry over the period 1968–1974 (entry less exist) influenced rivalry (mobility and turnover among top five firms). Results of a multivariate regression analysis indicate no relationship between entry and rivalry. Two possible explanations for this somewhat surprising finding are: (1) new entry into banking markets is typically on a relative small scale, and (2) if potential competition had been an effective factor prior to entry in some of the markets where net entry took place, the potential effect of new entry on rivalry may have been very small. This would tend to obscure a systematic relationship between net entry and rivalry.     

Comparison of Seasonal Anomalies across Major Equity Markets: A Note

This paper reexamines the existence of seasonal anomalies in daily stock prices by integrating seasonal patterns into a single comprehensive model that captures the joint effects of seasonal variations for each of the three major markets. This model incorporates serial correlation and corrects for non-normality by using robust regression techniques. Serial correlation is found to be important, as is the day of the week and the January variable. Furthermore, the Tuesday after a Monday holiday is significant for two markets using the robust technique (but not ordinary least squares). Finally, the day-preceding-a-holiday effect is strongly significant.     

Mean–variance convergence around the world

In this paper, we show (i) that the risk-return characteristics of our sample of 17 developed stock markets of the world have converged significantly toward each other during our study period 1974–2007, and (ii) that this international convergence in risk-return characteristics is driven mainly by the declining ‘country effect’, rather than the rising ‘industry effect’, suggesting that the convergence is associated with international market integration. Specifically, we first compute the risk-return distance among international stock markets based on the Euclidean distance and find that the distance thus computed has been decreasing significantly over time, implying a mean–variance convergence. In particular, the average risk-return distance has decreased by about 50% over our sample period. We also document that the risk-return characteristics of our sample of 14 emerging markets have been converging rapidly toward those of developed markets in recent years. This development notwithstanding, emerging markets still remain as a distinct asset class. Lastly, we show that the convergence in risk-return characteristics has exerted a negative impact on the efficiency of international investment during our sample period.     

Halloween or January? Yet another puzzle

Recent works suggest a potentially exploitable effect in US markets, the ‘Halloween Indicator’. This suggests that the greater part of changes in equity markets arises over the November-April period, with little change over the summer months, simultaneous with no evident changes in the risk profiles of the two six-month periods. We re-examine this and find contradictory evidence. Over the 1926-2002 period we find rather that the effect demonstrated may well be a reflection of the well-known January anomaly. Our conclusion therefore is that the jury remains out on the existence of a semi-annual seasonality.     

Vulnerability of financial markets in India: The contagious effect of COVID-19

This study aims to examine the impact of COVID-19 on financial markets, using emerging market data. Specifically, panel data regression is applied on 3200 observations for daily market returns during lockdown in India. The event study methodology is adopted to show abnormal returns registered in the lockdown period. A contrasting breakdown effect of COVID-19 on various Indian industries has been observed through sectoral analysis. The study also provides empirical evidence for lockdown measures taken by the government on stock market returns and post lockdown impact of COVID-19 on daily market returns for over 6550 observations.     

The UK National Minimum Wage in Retrospect*

This paper provides a retrospective summary of the effects of the UK national minimum wage (NMW) on labour market performance since its introduction in 1999. We use an ‘incremental differences‐in‐differences’ (IDiD) estimator to look at the effects of the NMW in each year through its differential impact across local labour markets. We find that the NMW is associated with a significant fall in wage inequality in the bottom half of the distribution. This suggests that geographical areas where the NMW ‘bites’ more have experienced larger declines in wage inequality than elsewhere. While the overall effect of the NMW on employment rates averaged over its existence is neutral, we do find small positive employment effects from 2003 onwards. Likewise, the association of the NMW with unemployment has been negative in recent years. NMW effects on hours have been mixed, but overall there is no compelling evidence to indicate that the NMW upratings have had an adverse effect on full‐time total hours of work. Notwithstanding the clarity of these results, any causal interpretation of them might be compromised by the presence of concomitant policies that might have been correlated with the ‘bite’ of the NMW.     

A three-tiered nested analytical approach to financial integration: The case of emerging and frontier equity markets

This study investigates the patterns of integration of emerging and frontier equity markets with the US stock market during the period 2002–2014 characterised by financial turmoil and instability. To add rigour to the study, to overcome the limitations of simple correlation analysis of integration, and to produce more robust results, we propose a nested analytical approach based on a three-tiered research design. The first level uses the smooth transition conditional correlations among the US, emerging, and frontier markets. The second tier uses the results of the smooth transition approach to creating different international portfolios, which, based on alternative investment strategies, account for the time-varying correlations among markets and exploit the scope of international diversification with less integrated markets. Finally, the last tier of analysis uses returns and risks of these different international portfolios and applies structural models to explore characteristics and integration patterns in turbulent times. The three nested approaches indicate that the global financial crisis has produced a permanent increase in the degree of integration among the US and frontier markets. Conversely, the crisis's effect seems to have been only temporary in the case of integration among the US and emerging equity markets. Despite the changes brought by the crisis, the degree of integration among emerging markets and the US market is considerably more significant than the degree of integration among frontier and US markets. The novelty of this methodological approach enables us to provide some original contributions and empirical results that are robust and relevant to investors in international markets.     

Pre-holiday effects: International evidence on the decline and reversal of a stock market anomaly

The pre-holiday effect is one of the best known of the calendar effect anomalies. This paper extends prior work by examining whether the effect has declined for the U.S., U.K. and Hong Kong markets. For all three markets, the effect is shown to have declined, but only significantly in the U.S. The result is not surprising given the relative sophistication of the market. What is surprising, however, is the reversal of the pre-holiday effect during the period 1991–1997, with the mean return on pre-holiday days becoming negative, and the subsequent elimination of this effect during 1997–2003.     

Empirical evidence of the existence of speculative bubbles in the prices of stocks traded on the São Paulo Stock Exchange

Speculative price bubbles are defined as a significant deviation between an asset's intrinsic value and its market value and in this paper it refers to stock values. Literature about the theme has noted the existence of bubbles in various types of markets and their respective assets. A great deal of effort has been directed toward identifying bubbles in stock price indices. However, few research endeavors focus on assets as the unit of analysis. Studies about stocks in Brazil have identified the presence of bubbles in IBOVESPA (São Paulo Stock Exchange Index). Given this context and assuming that the speculative bubbles are present in the Brazilian stock market, this research is focused on the following question: Is there evidence of the existence of speculative bubbles in stock prices traded on the São Paulo Stock Exchange? Econometric tests were performed on twenty-seven stocks, based upon their positions each semester, for the period between the first semesters of 1990 until the first semester of 2010. The nominal values of the selected stocks were adjusted for inflation by the IPCA (Brazilian Consumer Price Index). In order to identify the presence of bubbles, we applied the Johansen non-cointegration test and/or the Granger non-causality test between the intrinsic value, dividends and interest on equity capital, and the market value (semester closing price) of the stocks. The primary findings reveal a presence of bubbles in twenty of the twenty-seven stocks, at a 5% significance level. Of the seven stocks not showing evidence of bubbles, six are financial institutions. In five stocks the tests reveal Granger causality stemming from the market value toward the intrinsic value. The study findings are consistent and contribute with previous research in the literature and, are useful for investors, financial institutions, academics, government agents, and traders.     

Do Islamic stock indices perform better than conventional counterparts? An empirical investigation of sectoral efficiency

Literature is rife with studies on efficiency of stock markets and financial performance aspects. One such aspect is the measurement of sectoral efficiency amongst stock markets. While there are several studies analysing sectorial efficiency, there is no study on the efficiency of Islamic sector indexes. The rise of Islamic indices has raised the question and multiple studies have been undertaken in exploring and validating the better performance from a risk return framework for the Islamic indices. This study attempts to pioneer in this niche area by conducting a comparative analysis of 10 sectoral global indices for both conventional and Islamic counterpart spanning over 18 years. The sample time period runs from 1 January 1996 until 31 December 2014. To further validate our study, we have divided our data into four major time periods, to factor in different phases the world markets have gone through in the sample period, i.e. 1996–2000; 2001–2002; 2003–2006 and 2006 to 2014. The methodology selected in understanding the efficiency of these sectoral stock indices is the multifractal de-trended fluctuation analysis (MFDFA). Our analysis reveals that in the shorter horizon, efficiency tends to follow a similar pattern amongst the conventional and Islamic counterpart. Furthermore, Islamic sectoral indices generally tend to exhibit a higher efficiency regime across the last decade. Overall, Islamic index seems to have stayed attractive and resilient, allowing conformity with the weak form efficient market hypothesis.     

Intertemporal Commodity Futures Hedging and the Production Decision

This paper deals with the producer's optimal use of commodity futures in hedging. The framework for analysis is an intertemporal consumption and investment model. The producer makes his production decisions at the beginning of the period and realizes his return at the end of the time interval. During the period, he faces both price and output uncertainties. In applying stochastic dynamic programming methods, this paper shows the effect of these risks on his consumption behavior. Further, the paper investigates his optimal hedging positions in the futures market over time and his optimal production decisions. Finally, implications of these results on the futures markets are discussed.     

Market uncertainty,market sentiment,and the post-earnings announcement drift

Post-earnings announcement drift (PEAD) which was first identified over 40 years ago seems to be as much alive today as it ever was. Numerous attempts have been made to explain its continued existence. In this paper we provide evidence to support a new explanation: that the PEAD is a reflection of the level of market uncertainty and sentiment that prevails during the post-announcement period. The overriding conclusion from our analysis is that both uncertainty and sentiment play a central role in determining investor behaviour and it is this behaviour that ultimately determines the pricing that is observed in financial markets.     

The pricing of sentiment risk in European stock markets

This paper studies whether sentiment is rewarded with a significant risk premium in the European stock markets. We examine several sentiment proxies and identify the Economic Sentiment Indicator from the EU Commission as the most relevant sentiment proxy for our sample. The analysis is performed for the contemporaneous excess returns of EA-11 stock markets in the period from February 1999 to September 2015. We apply a conditional multi-beta pricing model in order to track the variation of the sentiment risk premium over time. The results demonstrate a positive significant relationship between sentiment and contemporaneous excess returns which is consistent with previous studies. The calculated sentiment risk premium is significant as well but negative implying that an investment in EA-11 countries over the examined time period – that is bearing sentiment risk – would have been unattractive to the investors on average.     

The under-pricing of IPOs in the Gulf cooperation council countries

We document the phenomenon of under-pricing initial public offerings (IPOs) for 47 Gulf firms that went public between 2001 and 2006. The IPOs had, on average, initial abnormal returns of 290 percent, far exceeding those documented for both developed and emerging markets. In aftermarket performance, we find that these IPOs provide investors with negative abnormal returns over a one-year period, which seems to be consistent with findings in other industrial and emerging markets. The empirical models fail, however, to provide us with a satisfactory explanation using the common independent variables employed in the literature. Nevertheless, it appears that country- and industry-specific characteristics, in addition to the timing of the offers, play a key role in explaining IPO behavior in the region. This paper's empirical findings support the hypothesis that investors are initially over-optimistic about an IPO's performance, but grow more pessimistic over time.     

Misspecification of capital asset pricing: Empirical anomalies based on earnings' yields and market values

This study documents empirical anomalies which suggest that either the simple one-period capital asset pricing model (CAPM) is misspecified or that capital markets are inefficient. In particular, portfolios based on firm size or earnings/price (E/P) ratios experience average returns systematically different from those predicted by the CAPM. Furthermore, the ‘abnormal’ returns persist for at least two years. This persistence reduces the likelihood that these results are being generated by a market inefficiency. Rather, the evidence seems to indicate that the equilibrium pricing model is misspecified. However, the data also reveals that an E/P effect does not emerge after returns are controlled for the firm size effect; the firm size effect largely subsumes the E/P effect. Thus, while the E/P anomaly and value anomaly exist when each variable is considered separately, the two anomalies seem to be related to the same set of missing factors, and these factors appear to be more closely associated with firm size than E/P ratios.     

The Asset Growth Effect and Investor Protection in Emerging Markets: The Role of the Global Financial Crisis

The previous evidence shows that firms experience lower returns after a period with higher growth in assets. Two alternative explanations have been raised to explain this effect: mispricing and optimal investment. This study examines this effect in 26 emerging markets over the period of 2005–2013 with a special attention to the recent global financial crisis. We find a stronger asset growth effect during the crisis years relative to other years. This effect is stronger in firms with small or medium stock turnover ratio and firms operating in industries with low R&D intensity. We also investigate the heterogeneity across countries and find that a stronger asset growth effect during the crisis years exists only for emerging markets with low protection of shareholders and creditors. We argue that this evidence is in line with the mispricing hypothesis.     

Spectral analysis of stock market prices

The purpose of this article is to apply spectral analysis to six European Stock markets (Germany, France, Italy, The Netherlands, Belgium and the United Kingdom) and the New York Stock Exchange, over the period 1969–1976. For neither series do the estimates suggest deviations from randomness. However, a simple filter rule shows that substantial profits could have been made by a trader in the six European markets. This demonstrates that for testing market efficiency, spectral analysis is far from the best and the conclusion tends to support the hypothesis of ‘white-noise’ in imperfect markets. Cospectral analysis shows the lead and lag relations between the various stock markets under study.