Abstract
PurposeThe stock market anomalies have been studied across the globe with intermingled results for individual markets. The present study has investigated the financial year effect for Indian stock markets by testing month-of-the-year-effect anomalies.Design/methodology/approachThe oldest stock exchange's index returns (Bombay Stock Exchange [BSE]) have been tested using ordinary least squares (OLS) and autoregressive conditional heteroskedasticity in mean (ARCH-M) models with Student's t and Student's t-fixed distributions for the period between 1991 and 2019. The Glosten, Jagannathan and Runkle-generalised autoregressive conditional heteroskedasticity (GJR-GARCH) model has been further used to find out existence of the leverage effect in returns.FindingsThe findings indicated no evidence for anomalies in the Indian stock market which may be used by investors for making unusual returns. However, the volatility in returns has shown weak but significant results due to the financial year impact. The leverage effect has not been found in the financial year cycle change over. The Indian market may be said to be moving towards a state of efficiency, leaving no scope for investors to gauge bizarre profits.Research limitations/implicationsThe study has incorporated the Indian context for testing anomalies during the start and end of the financial year cycle. The model may be extended further to developed and developing nations’ markets for testing efficiency in their stock markets during the same cycle.Originality/valueThe paper may be the first of its kind to test for the financial year effect on standalone basis for Indian markets. The paper also adds to the existing literature on testing events’ effect.
Highlights
Stock markets fully reflect all available information and markets may be weak, semistrong or strong depending upon the velocity of discounted information (Malkiel and Fama, 1970)
The study has investigated the persistence of the financial year effect for Indian markets taking a time period after the Indian Government adopted a liberalised economic policy and markets got attraction from various foreign individual and institutional investors
The financial year cycle is a relevant and crucial time period for companies that have got listed on the stock exchange and their trading has been actively affecting their prices whenever information may be floated
Summary
Stock markets fully reflect all available information and markets may be weak, semistrong or strong depending upon the velocity of discounted information (Malkiel and Fama, 1970). The Indian stock markets have been studied in different time frames and varied result output persists thereby from their results. Majority of the studies have found that there exists a relationship between information and stock prices. The Indian stock markets demonstrated contradictory results (Raj and Kumari, 2006). The present paper throws light on the spillover effect from the month of March stock returns to April for the Indian stock market. The financial year change being the annual results disclosure time for companies may be one of the important factors which may impact the following monthly returns. This may tend to change the perception of investors for
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