Comparative analysis of stochastic seasonality, January effect and market efficiency between emerging and industrialized markets

Abstract

This study investigates whether there are significant differences in investment returns between emerging markets and industrialized markets in terms of stochastic seasonality, January effect and market efficiency. Data on investments, and returns for nine emerging countries and eleven industrialized countries spanning January 1990 to December 2020, were obtained from the Organization for Economic Cooperation and Development (OECD). The spectral nonparametric test was used to determine the presence of stochastic seasonality for each market while the regression test was used to determine the presence of January effect. In the case of determining the efficiency status of the markets, the variance ratio test and the runs test were used. In cases where there appeared to be differences between the two types of market, Fisher's exact test was used to verify such differences. The results show no significant differences between the two types of markets in terms of seasonality, January effect and efficiency statuses. Apart from Brazil which recorded stochastic seasonality, all others are not stochastically seasonal. In the case of the January effect, it was a mixed bag; five emerging markets had January effect while two industrialized markets had January effect.