January anomalies on CEE stock markets

Peter Árendáš,Božena Chovancová,Jana Kotlebova,Martin Koren

doi:10.21511/imfi.18(4).2021.11

Peter Árendáš, Božena Chovancová + Show 2 more

Open Access

https://doi.org/10.21511/imfi.18(4).2021.11

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Abstract

Numerous studies show that stock markets are often impacted by various calendar anomalies that disrupt the “random walk” behavior of stock prices. These anomalies contradict the Efficient markets theory and can be exploited to generate abnormal returns. This paper investigates the presence of two of them, namely the January effect and the January barometer, on the stock markets of 12 Central and Eastern European (CEE) countries. The paper examines the statistical significance of differences in returns recorded over the month of January and returns recorded over the other months (the January effect), as well as the statistical significance of differences between returns recorded during the remainder of year after a positive January return and after a negative January return (the January barometer). The results show, among other things, that the statistically significant January effect affects the Estonian, Lithuanian, Czech, Romanian, and Latvian stock markets. On the Romanian and Lithuanian stock markets, statistically significantly higher January returns are accompanied by statistically significantly higher January price volatility. On the other hand, we can speak of a statistically significant January barometer only in the case of the Latvian, Lithuanian, and Ukrainian stock markets. The presence of these anomalies is contrary to the Efficient market theory. It can be assumed that proper investment strategies based on these calendar anomalies should be able to generate abnormal returns. AcknowledgmentThis paper is an outcome of the science projects VEGA (1/0613/18) and VEGA (1/0221/21).

Highlights

The question of whether a stock market is efficient or inefficient is highly important for investors
The paper examines the statistical significance of differences in returns recorded over the month of January and returns recorded over the other months, as well as the statistical significance of differences between returns recorded during the remainder of year after a positive January return and after a negative January return
This paper focused on the presence of the January effect and January barometer on 12 stock markets of the Central and Eastern European (CEE) region

Summary

Introduction

The question of whether a stock market is efficient or inefficient is highly important for investors. According to Fama (1965), on an efficient market, all important information should always be reflected in asset prices. One of the proofs of the stock market inefficiency are calendar anomalies Calendar anomalies such as the Halloween effect (Bouman & Jacobsen, 2002; Andrade et al, 2013), the Holiday effect (Lakonishok & Smidt, 1988; Mehran et al, 2012), the Weekend effect (Cross, 1973; Boudreaux et al, 2010), or the Turn of the month effect (Ariel, 1987; Liu, 2013) have been found on many stock markets around the world over different time periods

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