Indian Stock Market Regularity: The Turn of the Month Effect

Abstract

Recent empirical studies have identified the presence of the Turn of the Month (TOM) effect on various stock markets. This effect is a yell-knoYn calendar anomaly in stock markets, characterized by higher returns and increased trading volume around the beginning of each month. The researchers have proposed several explanations for this anomaly, includ- ing factors such as increased liquidity, YindoY dressing practices, and neys announcements. This study focuses on investigating the TOM effect in the Indian stock market, specifically focusing on size of firms and trading activity by individual investors, as Yell as domestic and foreign institutional investors. We analysed the closing prices of four indices (Nifty 50, S&P BSE Sensex, Nifty SmallCap 50, and BSE SmallCap) from April 2007 to February 2023. Our analysis involved using parametric t-tests and non-parametric Mann-Whitney U tests to assess the significance of our findings. The results indicate that the TOM effect is indeed significant in the Indian stock market, Yith higher returns observed during the days surrounding the TOM. Furthermore, this effect is more pronounced in smaller indices com- pared to larger ones. Additionally, Ye found that domestic institutional investors engage in significant trading activity toYards the end of the trading month, Yhile individual investors do not demonstrate the same pattern. Foreign investors also exhibit notable differences in trading activity betYeen the TOM and the rest of the month.