Testing Daily Seasonality Using Value Premium Portfolios Returns: The Case of Pakistan
Abstract
Abstract Views: 73
Calendar anomalies are a well-documented phenomena in financial markets. The current study scrutinized calendar anomalies in the context of the local market by analyzing the Pakistan stock exchange. The data from the listed companies of PSX have been considered to test for seasonality in value premium portfolios using OLS regression, general GARCH (1,1), TGARCH, GJR-GARCH, PGARCH, and EGARCH models. The findings suggest that return seasonality among different value premium portfolios explains the economically and statistically significant magnitude of small firm effect. The current research also analyzed average stock returns with cross-sectional variation. It confirmed the relationship of size with daily seasonality. Furthermore, it also determined that a weak form of efficiency exists in the Pakistani stock market. Thus, the findings indicate that the investors are able to earn abnormal returns on their investments with the help of timing strategies.
Downloads
References
Abbas, S., & Javid, A. Y. (2015). The day-of-the-week anomaly in market returns, volume and volatility in SAARC countries (PIDE Workinig Paper No. 129). https://www.pide.org.pk/pdf/Working%20Paper/WorkingPaper-129.pdf
Abraham, A., & Ikenberry, D. L. (1994). The individual investor and the weekend effect. Journal of Financial and Quantitative Analysis, 29(2), 263-277. https://doi.org/10.2307/2331225
Agnani, B., & Aray, H. (2011). The January effect across volatility regimes. Quantitative Finance, 11(6), 947-953. https://doi.org/10.1080/14697680903540373
Al‐Khazali, O. M. (2001). Does the January effect exist in high‐yield bond market? Review of Financial Economics, 10(1), 71-80. https://doi.org/10.1016/S1058-3300(01)00026-X
Anderson, L. R., Gerlach, J. R., & DiTraglia, F. J. (2007). Yes, Wall Street, there is a January effect! Evidence from laboratory auctions. The Journal of Behavioral Finance, 8(1), 1-8. https://doi.org/10.1080/15427560709337012
Anjum, S. (2020). Impact of market anomalies on stock exchange: A comparative study of KSE and PSX. Future Business Journal, 6(1), 1-11. https://doi.org/10.1186/s43093-019-0006-4
Blahun, I. S., Dmytryshyn, L., Blahun, I. I., & Blahun, S. (2022). Stock Indices as indicators of market efficiency and interaction. Economic Studies, 31(8), 87-106.
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307-327. https://doi.org/10.1016/0304-4076(86)90063-1
Cabello, A., & Ortiz, E. (2005). Day of the week and month of the year effects at the Latin American emerging markets. In H. Arbeláez & R. W. Click (Eds.), Latin American financial markets: Developments in financial innovations (pp. 273-304). Emerald Group Publishing Limited. https://doi.org/10.1016/S1569-3767(05)05013-2
Chai, D., Chiah, M., & Zhong, A. (2020). Decomposing value: Changes in size or changes in book-to-market? Pacific-Basin Finance Journal, 64, e101467. https://doi.org/10.1016/j.pacfin.2020.101467
Chan, H. L., & Woo, K.-Y. (2012). Day-of-the-week effect on the return and conditional variance of the H-shares index in Hong Kong. Applied Economics Letters, 19(3), 243-249. https://doi.org/10.1080/13504851.2011.572838
Chatterjee, A., & Maniam, B. (1997). Market anomalies revisited. Journal of Applied Business Research (JABR), 13(4), 47-56. https://doi.org/10.19030/jabr.v13i4.5740
Chou, J., Das, P. K., & Uma Rao, S. (2011). The value premium and the January effect. Managerial Finance, 37(6), 517-536. https://doi.org/10.1108/03074351111134727
Claesson, K. (1987). The efficiency of the stockholm stock exchange. Stockholm School of Economics, Sweden.
Dhatt, M. S., Kim, Y. H., & Mukherji, S. (1999). The value premium for small-capitalization stocks. Financial Analysts Journal, 55(5), 60-68. https://doi.org/10.3905/joi.2004.450755
Ding, Z., Granger, C. W., & Engle, R. F. (1993). A long memory property of stock market returns and a new model. Journal of Empirical Finance, 1(1), 83-106. https://doi.org/10.1016/0927-5398(93)90006-D
Du Toit, E., Hall, J. H., & Pradhan, R. P. (2018). The day-of-the-week effect: South African stock market indices. African Journal of Economic and Management Studies, 9(2), 197-212. https://doi.org/10.1108/AJEMS-07-2017-0163
Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica: Journal of the Econometric Society, 987-1007. https://doi.org/10.2307/1912773
Fama, E. F., & French, K. R. (1995). Size and book‐to‐market factors in earnings and returns. The Journal of Finance, 50(1), 131-155. https://doi.org/10.1111/j.1540-6261.1995.tb05169.x
Fama, E. F., & French, K. R. (1998). Value versus growth: The international evidence. The Journal of Finance, 53(6), 1975-1999. https://doi.org/10.1111/0022-1082.00080
Fama, E. F., & French, K. R. (2006). The value premium and the CAPM. The Journal of Finance, 61(5), 2163-2185. https://doi.org/10.1111/j.1540-6261.2006.01054.x
Fama, E. F., & French, K. R. (2021). The value premium. The Review of Asset Pricing Studies, 11(1), 105-121. https://doi.org/10.1093/rapstu/raaa021
Gharghori, P., Stryjkowski, S., & Veeraraghavan, M. (2013). Value versus growth: Australian evidence. Accounting & Finance, 53(2), 393-417. https://doi.org/10.1111/j.1467-629X.2012.00474.x
Glosten, L. R., Jagannathan, R., & Runkle, D. E. (1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. The Journal of Finance, 48(5), 1779-1801. https://doi.org/10.1111/j.1540-6261.1993.tb05128.x
Griffiths, M. D., & Winters, D. B. (2005). The turn of the year in money markets: Tests of the risk‐shifting window dressing and preferred habitat hypotheses. The Journal of Business, 78(4), 1337-1364. https://doi.org/10.1086/430862
Guo, S., & Wang, Z. (2008). Market efficiency anomalies: A study of seasonality effect on the Chinese stock exchange [Master thesis, Handelshögskolan vid Umeå universitet].
Harshita, Singh, S., & Yadav, S. S. (2019). Unique calendar effects in the Indian stock market: Evidence and explanations. Journal of Emerging Market Finance, 18(1_suppl), S35-S58. https://doi.org/10.1177/0972652719831549
Haug, M., & Hirschey, M. (2006). The january effect. Financial Analysts Journal, 62(5), 78-88. https://doi.org/10.2469/faj.v62.n5.4284
Husain, F. (1998). A seasonality in the Pakistani equity market: The Ramadhan effect. The Pakistan Development Review, 37(1), 77-81.
Hussain, F., Hamid, K., Imdad Akash, R. S., & Imdad Khan, M. (2011). Day of the week effect and stock returns:(Evidence from Karachi stock exchange-Pakistan). Far East Journal of Psychology and Business, 3(1). https://ssrn.com/abstract=2899426
Jackson, C., & Orr, A. (2019). Investment decision-making under economic policy uncertainty. Journal of Property Research, 36(2), 153-185. https://doi.org/10.1080/09599916.2019.1590454
Ke, B., & Ramalingegowda, S. (2005). Do institutional investors exploit the post-earnings announcement drift? Journal of Accounting and Economics, 39(1), 25-53. https://doi.org/10.1016/j.jacceco.2004.02.002
Khan, N., Zada, H., & Yousaf, I. (2022). Does premium exist in the stock market for labor income growth rate? A six-factor-asset-pricing model: Evidence from Pakistan. Annals of Financial Economics, 17(03), e2250017. https://doi.org/10.1142/S2010495222500178
Kyriazis, D., & Christou, C. (2013). A re-examination of the performance of value strategies in the Athens Stock Exchange. International Advances in Economic Research, 19(2), 131-151. https://doi.org/10.1007/s11294-013-9402-7
Lee, C. f., Porter, D. C., & Weaver, D. G. (1998). Indirect tests of the Haugen‐Lakonishok small‐firm/January effect hypotheses: Window dressing versus performance hedging. Financial Review, 33(2), 177-194. https://doi.org/10.1111/j.1540-6288.1998.tb01376.x
Li, F., Zhang, H., & Zheng, D. (2018). Seasonality in the cross section of stock returns: Advanced markets versus emerging markets. Journal of Empirical Finance, 49, 263-281. https://doi.org/10.1016/j.jempfin.2018.11.001
Liu, C. (2021). Why do firms fail to engage diversity? A behavioral strategy perspective. Organization Science, 32(5), 1193-1209. https://doi.org/10.1287/orsc.2020.1425
Loughran, T. (1997). Book-to-market across firm size, exchange, and seasonality: Is there an effect? Journal of Financial and Quantitative Analysis, 32(3), 249-268. https://doi.org/10.2307/2331199
Mäkelä, K. (2008). Calendar anomalies in the baltic stock markets [Bachelor thesis, Lappeenranta University of Technology].
Marrett, G. E., & Worthington, A. C. (2008). The day-of-the-week effect in the Australian stock market: An empirical note on the market, industry and small cap effects. International Journal of Business and Management, 3(1), 3-8. https://doi.org/10.5539/ijbm.v3n1p3
Muhammad, N. M. N., Rahman, N. (2010). Efficient market hypothesis and market anomaly: Evidence from day-of-the week effect of Malaysian exchange. International Journal of Economics and Finance, 2(2), 35-42.
Mustafa, K. (2008). The Islamic calendar effect on Karachi stock market. Global Business Review, 13(3), 562-574.
Naz, F., Zahra, K., Ahmad, M., & Riaz, S. (2021). Day-of-the-week effect: A sectoral analysis of Pakistan stock exchange. International Journal of Financial Engineering, 8(02), e2141006. https://doi.org/10.1142/S2424786321410061
Nelson, D. B. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica: Journal of the Econometric Society, 59(2), 347-370. https://doi.org/10.2307/2938260
Ng, L., & Wang, Q. (2004). Institutional trading and the turn-of-the-year effect. Journal of Financial Economics, 74(2), 343-366. https://doi.org/10.1016/j.jfineco.2003.05.009
Nguyen, T. (2022). Market efficiency hypothesis in emerging stock markets: an analysis of vietnamese stock market over the period of 2013-2021 and the prominence of herd behavior in inefficient periods [Bachlor thesis, Aalto University].
Nishat, M., & Mustafa, K. (2002). Anomalies in Karachi stock market: Day of the week effect. The Bangladesh Development Studies, 28(3), 55-64.
Novy-Marx, R. (2013). The other side of value: The gross profitability premium. Journal of Financial Economics, 108(1), 1-28. https://doi.org/10.1016/j.jfineco.2013.01.003
Oluseyi, T. A. (2022). Risk management strategy and financial performance of listed banks at nigeria stock exchange [ Doctoral thesis, Jomo Kenyatta University of Agriculture and Technology, Kenya]. JKUAT Digital Repository. http://ir.jkuat.ac.ke/handle/123456789/5913
Pandey, S., & Samanta, A. (2022). An empirical analysis of calendar anomalies in stock returns–evidence from India. Book Rivers.
Petkova, R., & Zhang, L. (2005). Is value riskier than growth? Journal of Financial Economics, 78(1), 187-202. https://doi.org/10.1016/j.jfineco.2004.12.001
Poterba, J. M., & Weisbenner, S. J. (2001). Capital gains tax rules, tax‐loss trading, and turn‐of‐the‐year returns. The Journal of Finance, 56(1), 353-368. https://doi.org/10.1111/0022-1082.00328
Rogalski, R. J. (1984). New findings regarding day‐of‐the‐week returns over trading and non‐trading periods: a note. The Journal of Finance, 39(5), 1603-1614. https://doi.org/10.1111/j.1540-6261.1984.tb04927.x
Shamshir, M., & Baig, J. M. (2016). Evidence of monthly anomalies in Pakistan stock exchange. Archives of Business Research, 4(6), 312-324. https://doi.org/10.14738/abr.46.2515
Singal, V. (2004). Beyond the random walk: A guide to stock market anomalies and low-risk investing. Oxford University Press.
Starks, L. T., Yong, L., & Zheng, L. (2006). Tax‐loss selling and the January effect: evidence from municipal bond closed‐end funds. The Journal of Finance, 61(6), 3049-3067. https://doi.org/10.1111/j.1540-6261.2006.01011.x
Ţilică, E. V., & Oprea, D. (2014). Seasonality in the Romanian stock market: The-day-of-the-week effect. Procedia Economics and Finance, 15, 704-710. https://doi.org/10.1016/S2212-5671(14)00543-7
Ullah, I., Ullah, S., & Ali, F. (2016). Market efficiency anomalies: A study of january effect in Karachi stock market. Journal of Managerial Sciences, 10(1), 32-44.
Yat, D. N. C., Keong, L. B., & Ling, C. H. (2011). Sectoral analysis of calendar effects in Malaysia: Post financial crisis (1998-2008). African Journal of Business Management, 5(14), 5600-5611. https://doi.org/10.5897/AJBM11.044
Zafar, N., Urooj, S. F., Chughtai, S., & Amjad, S. (2012). Calendar anomalies: Case of Karachi stock exchange. African Journal of Business Management, 6(24), 7261-7271. https://doi.org/10.5897/AJBM11.1847
Zafar, N., Urooj, S. F., & Farooq, S. U. (2010). Karachi stock exchange: Testing month of the year effect. European Journal of Economics, Finance and Administrative Sciences, 24, 20-28.
Zakoian, J.-M. (1994). Threshold heteroskedastic models. Journal Of Economic Dynamics and Control, 18(5), 931-955. https://doi.org/10.1016/0165-1889(94)90039-6
Zhang, J., Lai, Y., & Lin, J. (2017). The day-of-the-week effects of stock markets in different countries. Financial Research Letters, 20, 47-62. https://doi.org/10.1016/j.frl.2016.09.006
Copyright (c) 2022 Farah Naz, Kanwal Zahra, Tooba Lutfullah
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgement of the work’s authorship and initial publication in this journal.
