Abstract
This paper investigates the month-of-the-year effect in the UK Brent crude oil market using the GARCH (1,5) and GJR-GARCH (1,5) models in the light of Asian financial crisis and the global financial crisis using daily data over the period, January 4, 1988 and May 27, 2009. The result shows the presence of the month-of-the-year effect in volatility but not in the return in the oil market. However, the pattern of significance of monthly effect in volatility is affected by the choice of model. The significant month-of-the-year effect on volatility may be in line with information availability theory The result shows that the Asian financial crisis has an impact on the oil price return series while the global financial crisis has no impact on oil price returns. The Asian financial crisis and global financial crisis did not account for the sudden change in variance.
Highlights
The monthly seasonality in returns has been well documented and tested for various stock markets and countries (Rozeff and Kinney, 1976; Gultekin and Gultekin, 1983; Keim, 1983; Reinganum, 1983)
The result shows that the Asian financial crisis has an impact on the oil price return series while the global financial crisis has no impact on oil price returns
G2 representing coefficient of the global financial crisis is statistically insignificant at the 5% level in the generalized autoregressive conditional heteroskedasticity (GARCH) (1,5) model and the two augmented models
Summary
The monthly seasonality in returns has been well documented and tested for various stock markets and countries (Rozeff and Kinney, 1976; Gultekin and Gultekin, 1983; Keim, 1983; Reinganum, 1983). The month-of-the-year effect is present when returns in some months are higher than other months. This seasonal market anomaly, if present, refutes market efficiency. Called January effect or year end effect or “tax loss selling” hypothesis, argued that investors, in order to reduce their taxes, sell their stocks in December (which is the tax month) to book losses. Little or no work has been done on monthly seasonality of the oil market
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