Abstract
This research seeks to investigate whether holidays affect the stock exchange of the multi-cultural country of Malaysia. By performing ordinary least squares analysis on data from the Bursa Malaysia main index from year 2001 to year 2010, it was found that returns during Christmas and Chinese New Year period were significantly higher. More specifically, there was a two-month market rally prior to the Chinese New Year. In addition, the excess return from the first trading day after Christmas to two trading days before New Year’s Day are positively significant. The effects of other holidays were not significant. Possible reasons of a lack of significant effects during important Islamic holidays such as Aidilfitri could be due to the Muslim’s lower participation in the stock market.
Highlights
Some researches regard the Malaysian equity market as weakly efficient (Barnes, 1986; Laurence, 1986; Cheong et al, 2008; Har et al, 2008)
The researchers were of the opinion that the lack of evidence of significant Aidilfirti effect is due to smaller participation by the Muslim Malays in the stock market, the practice of giving cash bonuses is not as generous as compared to Chinese New Year, and the perception that participation in stock market is similar to gambling activities, which is forbidden in Islam
If the null hypothesis is rejected, it means that the state holidays or the cultural holidays, or both do have an effect on the Malaysian stock market
Summary
Some researches regard the Malaysian equity market as weakly efficient (Barnes, 1986; Laurence, 1986; Cheong et al, 2008; Har et al, 2008). Over the years, evidences that contradict the weakly efficient market hypothesis were found. Notable examples of anomalous evidence of the weakly efficient market hypothesis are the Seasonal or Calendar effects such as the Day-of-the-Week effect, the Turn-of-the-Month effect, the January effect and Holidays effect. Brooks and Persand (2001) loosely defined the Calendar effect as “the tendency of financial asset returns to display systematic patterns at certain times of the day, week, month, year, or around market closure”. We seek to examine the effects of Federal holidays that can cause price changes on the Bursa Malaysia. We formulate and test hypotheses to determine whether returns during the festive periods are the same as the returns during non-festive periods
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