Calendar Effects in Stock Markets: Critique of Previous Methodologies and Recent Evidence in European Countries
AbstractThis paper examines day of the week and month of the year effects in seventeen European stock market indexes in the period 1994-2007. We discuss the shortcomings of model specifications and tests used in previous work, and propose a simpler specification, usable for detecting all types of calendar effects. Recognizing that returns are non-normally distributed, autocorrelated and that the residuals of linear regressions are variant over time, we use statically robust estimation methodologies, including bootstrapping and GARCH modeling. Although returns tend to be lower in the months of August and September, we do not find strong evidence of across-the-board calendar effects, as the most favorable evidence is only country-specific. Additionally, using rolling windows regressions, we find that the stronger country-specific calendar effects are not stable over the whole sample period, casting additional doubt on the economic significance of calendar effects. We conclude that our results are not immune to the critique that calendar effects may only be a “chimera” delivered by intensive data mining. Key words: Day-of-the-week effect; Month effect, Market efficiency, European stock markets
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Bibliographic InfoPaper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number 2009/37.
Date of creation: Sep 2009
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Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila.iseg.utl.pt/aquila/departamentos/EC
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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- Stavarek, Daniel & Heryan, Tomas, 2012. "Day of the week effect in central European stock markets," MPRA Paper 38431, University Library of Munich, Germany.
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