Abstract
One important gap in finance literature is the seasonality in volatility. Just like the seasonality in stock returns it is possible that volatility may also have a pattern. Time series volatility is related to previous values and it is sticky in nature. Thus, detection of seasonality in volatility may be difficult. Therefore, we use cross-sectional volatility from daily returns of a cross-section of firms (in our case, sectors) and examine the relationship between daily cross-sectional volatility and day of the week, turn of the month and turn of the year. This paper examines how the cross-sectional volatility of the Jordanian stock market may change due to the day of the week, turn of the month and turn of the year. Results show strong evidence of reduction of volatility on Thursday compared to Sunday, and significantly lower volatility on the first three days of the month compared to the third day before the last day of the month. Thus, this finding is important for investors to better understand risk.
Highlights
Capital market efficiency has been a popular topic for empirical research since Fama [15], [16] described the theoretical analysis of market efficiency (Efficient Market Hypothesis)
This paper studies the seasonality of cross-sectional volatility measured from the Amman Stock Exchange (ASE) stock returns
This paper examines how the cross-sectional volatility of the Jordanian stock market may change due to the day of the week, turn of the month and turn of the year
Summary
Capital market efficiency has been a popular topic for empirical research since Fama [15], [16] described the theoretical analysis of market efficiency (Efficient Market Hypothesis). 1 Four statistically significant seasonal patterns found in the U.S and the other developed countries' stock market returns are the weekend effect, turn-of-the-month effect, turn-of-the-year effect, and holiday effect. These return regularities may provide opportunities for to the investors/traders to make significant profit around these periods by taking appropriate trading strategies. This paper studies the seasonality of cross-sectional volatility measured from the Amman Stock Exchange (ASE) stock returns.
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