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Is There Seasonality in the Sensex Monthly Returns?

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  • Pandey I M

Abstract

The presence of the seasonal or monthly effect in stock returns has been reported in several developed and emerging stock markets. This study investigates the existence of seasonality in Indias stock market. It covers the post-reform period. The study uses the monthly return data of the Bombay Stock Exchanges Sensitivity Index for the period from April 1991 to March 2002 for analysis. After examining the stationarity of the return series, we specify an augmented auto-regressive moving average model to find the monthly effect in stock returns in India. The results confirm the existence of seasonality in stock returns in India and the January effect. The findings are also consistent with the "tax-loss selling" hypothesis. The results of the study imply that the stock market in India is inefficient, and hence, investors can time their share investments to improve returns.

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Bibliographic Info

Paper provided by Indian Institute of Management Ahmedabad, Research and Publication Department in its series IIMA Working Papers with number WP2002-09-08.

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Handle: RePEc:iim:iimawp:wp00038

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  1. Aggarwal, Raj & Rao, Ramesh P & Hiraki, Takato, 1990. "Regularities in Tokyo Stock Exchange Security Returns: P/E, Size, and Seasonal Influences," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 13(3), pages 249-63, Fall.
  2. Jaffe, Jeffrey F. & Westerfield, Randolph & Ma, Christopher, 1989. "A twist on the Monday effect in stock prices: Evidence from the U.S. and foreign stock markets," Journal of Banking & Finance, Elsevier, vol. 13(4-5), pages 641-650, September.
  3. Jaffe, Jeffrey & Westerfield, Randolph, 1989. "Is there a monthly effect in stock market returns? : Evidence from foreign countries," Journal of Banking & Finance, Elsevier, vol. 13(2), pages 237-244, May.
  4. Keim, Donald B., 1983. "Size-related anomalies and stock return seasonality : Further empirical evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 13-32, June.
  5. Smirlock, Michael & Starks, Laura, 1986. "Day-of-the-week and intraday effects in stock returns," Journal of Financial Economics, Elsevier, vol. 17(1), pages 197-210, September.
  6. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  7. Gultekin, Mustafa N. & Gultekin, N. Bulent, 1983. "Stock market seasonality : International Evidence," Journal of Financial Economics, Elsevier, vol. 12(4), pages 469-481, December.
  8. Aggarwal, Reena & Rivoli, Pietra, 1989. "Seasonal and Day-of-the-Week Effects in Four Emerging Stock Markets," The Financial Review, Eastern Finance Association, vol. 24(4), pages 541-50, November.
  9. Sidney B. Wachtel, 1942. "Certain Observations on Seasonal Movements in Stock Prices," The Journal of Business, University of Chicago Press, vol. 15, pages 184.
  10. Officer, R. R., 1975. "Seasonality in Australian capital markets : Market efficiency and empirical issues," Journal of Financial Economics, Elsevier, vol. 2(1), pages 29-51, March.
  11. Ariel, Robert A., 1987. "A monthly effect in stock returns," Journal of Financial Economics, Elsevier, vol. 18(1), pages 161-174, March.
  12. Kato, Kiyoshi & Schallheim, James S., 1985. "Seasonal and Size Anomalies in the Japanese Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(02), pages 243-260, June.
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Cited by:
  1. Fatta Bahadur K.C. Ph. D. & Nayan Krishna Joshi, 2005. "The Nepalese Stock Market: Efficient and Calendar Anomalies," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 17, pages 40-85, April.

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