Abstract
This study examines the calendar effects specially day of the week effects and month of the year effects in the Colombo stock market. The study on the day of the week effect was done based on daily all share price index (ASPI) for the period January 2004 to June 2015 and the study on the month of the year effect employs based on monthly ASPI for the period January 1998 to June 2015. The calendar effects are examined by applying multiple regression (OLS and GARCH models) using dummy variables. Regression results show that presence of the day of the week effect and month of the year effect in the Colombo stock market during the study period. Findings indicate significantly positive high returns on Friday while Monday returns are significantly negative in consistent with previous studies. In addition, the results shows a significantly positive returns on Wednesday and Thursday. In the case of monthly effect, there is a significantly positive high returns in September in the Colombo stock market in contradict to previous findings. There is no evidence for January or April effects during the study period instead there is September effect in the Colombo stock market. The findings of the calendar effects are important to the financial managers, financial analysts and investors to take a fruitful investment decisions.
Highlights
There are numerous studies on timing patterns in security returns
The objective of this study is to investigate the day of the week effect and month of year effect on the stock return of Colombo stock market, in order to add to the literature by providing evidence of emerging market behavior using updated data
This study examines the calendar effects specially day of the week effects and month of the year effects in the Colombo stock market
Summary
There are numerous studies on timing patterns in security returns. Watch (1942) first reported the prevalence of a seasonal January effect in the U.S stock market where returns in January are higher than in any other month.1 Rozeff and Kinney (1976) documented some evidence of higher mean returns in January as compared to other months. Using NYSE stocks for the period of 1904-1974, they find that the average return for the month of January was 3.48 percent as compared to only 0.42 percent for the other months. Later studies shows that the January effect persists: Bhardwaj and Brooks (1992) for 1977-1986 and Chen and Singal (2004) for 1993-1999
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